Ed-Tech Market Dealmaking Fueled by Data Use
The increasing use of data generated by education technology in K-12 is driving more sophisticated conversations among dealmakers looking to buy or sell companies that serve schools.
Under the system that prevailed in the market for years, a small group of education companies dominated the landscape because they could use large sales forces to sell a wide variety of products. That limited the ability of smaller companies to emerge and attract the attention of potential buyers. But that environment is changing.
Today, by looking at top mergers and acquisitions in recent years, it's possible to see the influence of educational efficacy on business decisions, said Deborah H. Quazzo, the founder and managing partner of GSV Advisors, a Chicago-based financial-advisory company in the education sector. "It was much harder to measure efficacy in a world where we didn't have data and digital learning," said Ms. Quazzo.
Now, the "return on education" concept should be the one driving companies' value and viability rather than the size of their sales forces, according to Ms. Quazzo. To establish an "ROE," which is related to the business concept of "ROI," or return on investment, Ms. Quazzo said companies need to show the value of their products using one of four results: "You're either improving learning outcomes, increasing access to education (think MOOCs), driving down costs, and/or improving leverage to the teacher with a tool or platform that allows teachers to access more students."
Education Week asked GSV Advisors to identify top mergers and acquisitions in K-12 education over the past five years, using criteria showing an impact on education and the industry.
Ms. Quazzo pointed to companies acquired this year that she said demonstrated high efficacy: Truenorthlogic, a Sandy, Utah-based professional-development management platform provider for educators; and Imagine Learning, a Provo, Utah-based language- and literacy-software program for English-language learners, special education students, and early-childhood education. The two were acquired by Weld North LLC, a New York City-based investment company.
GSV Advisors LLC, a Chicago-based investment bank that connects education entrepreneurs and growth companies with investors identified major transactions in the educational technology marketplace over the past five years for Education Week.
• McGraw-Hill Education's purchase of Engrade, an instructional-improvement platform, in 2014, and ALEKS, the developer of an adaptive- learning technology, in 2013. McGraw-Hill Education itself was acquired by Apollo Global Management LLC for $2.5 billion in 2012.
GSV Advisors also searched for transactions with significant impact as "market validations," meaning they demonstrated enough value to attract more capital to the K-12 market. The company also identified deals that drew new interest to the market, such as Amazon's entry into the K-12 marketplace with its acquisition of math startup TenMarks in 2013—or bellringers, such as the $1.1 billion acquisition of Renaissance Learning by Hellman & Friedman, a San Francisco-based private-equity firm.
Ms. Quazzo cited three other examples of market validations: News Corp.'s acquisition of Wireless Generation, an ed-tech company, in 2010, which led to the formation of Amplify; and the Pearson acquisitions in 2011 of Schoolnet, an instruction management company, and Connections Education, which operates Connections Academy, a K-12 virtual education program. They were "terrific market validations," she said.
Validations from educators are another matter, with several experts saying most administrators and teachers pay little attention to "who owns what" in the ed-tech world.
David A. Irwin, who consults with top school district officials in the country in his capacity as managing partner of the K-12 education practice at Gartner Inc., an information-technology research and advisory company, said, "Obviously, [educators] follow Pearson, and Pearson gobbling up all the different vendors," he said. "I haven't heard them being concerned about the larger conglomerates. They get excited that [companies] are finally coming to market with solutions."
Vol. 33, Issue 35, Page s24
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