Opinion
Money & Finance Opinion

A Busy Summer for Investment Bankers and Lawyers

September 14, 2007 3 min read

In the course of preparing the “catch up” issue of School Improvement Industry Provider Announcements (the monthly publication takes a vacation in August), I was surprised at the number of investments that took place in July and August. Going back to July revealed even more transactions. Investment bankers did a lot more business in the sector than they have for a while.Here’s my quick scorecard:

Acquisitions

Children’s Internet by private investors
Harcourt by Houghton Mifflin Riverdeep Group
• Freerain by eSchoolMall
Educate by management
• Thomson Prometric by ETS

Equity Investment

Achieve 3000
SMART Technologies
Tutor.com
Princeton Review

Public Offering Announced
Scientific Learning Inc.
K12 Inc.

Recapitalization
Haights Cross Communications

Observations

1. The school improvement industry has come a long way from the dark days’ after the internet bust. Recall that the internet boom only reached the “new education economy” at the end of its expansion – as all that free money created by irrational exuberance ran out of pure internet plays but still needed to be placed by venture capital firms.

I remember observing a board meeting of Co-nect as the President of the Education Entrepreneurs Fund after the bust. Then-board chair Lamar Alexander compared the environment to “nuclear winter,” and reminded the group that “after nuclear winter, there is no spring.” The image resonated with this former nuclear strategist. At one point thereafter Co-nect owed the Fund $3 million. My successor, Keith Collar was undoubtably satisfied that it weathered the storm and was purchased by Pearson in 2005.

2. Looking at the deals on their own merits, they fall into three categories.

The Harcourt and Prometric acquisitions are rearrangements of the parts, or “same monkeys different trees.” Education conglomerates units are just moving around. I see no huge impact of the market for years. If these are smart moves by the buyers, the proof wont be clear for perhaps a decade. Why”? Because the plays are strategic, Houghton Mifflin Riverdeep Group is trying for the end-to-end solution, just like its big rivals. ETS is consolidating its testing presence.

Most of the equity investments are bets that the company in question possesses unrealized value. SMART is a bet on smart whiteboards, Princeton on a brand that’s been sub-optimally managed, Tutor.com on CEO George Cigale, Achieve on edtech. The management buy out of Educate on the Sylvan name. These bets depend on the prospect of a sale to the publishers, and the value of that depends at least in part on whether the investors have the option of an IPO,

Scientific Learning’s and K-12’s offerings are to some extent a bet on the markets interest in public education. The first strikes me as a company with less risk, because it has a high quality product and proprietary technology. K12 is weak on the merits. But in the end, whether these transaction take place, and the funds they raise, depends a lot on perceptions of public education as a safe place to put your money.

3. I can’t help but wonder if we are not seeing a repeat of the internet boom-bust experience. I fear that the school improvement industry is the last place to benefit from an investment boom, and the first to affected by a “liquidity crisis.” We’ve just been through a huge amount of hype about private equity, a sure sign the best deals are behind investors, and a reason to worry about the more recent. And now we are in the midst of the mortgage markets implosion. If the K-12 IPO doesn’t go forward, one reason will be that the markets just aren’t prepared to place whatever money they have left in the risky school improvement sector.

Related Tags:
Funding/Budgets

The opinions expressed in edbizbuzz are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Equity & Diversity Webinar
Culturally Relevant Pedagogy to Advance Educational Equity
Schools are welcoming students back into buildings for full-time in-person instruction in a few short weeks and now is the perfect time to take a hard look at both our practices and systems to build
Content provided by PowerMyLearning
Classroom Technology Webinar Making Big Technology Decisions: Advice for District Leaders, Principals, and Teachers
Educators at all levels make decisions that can have a huge impact on students. That’s especially true when it comes to the use of technology, which was activated like never before to help students learn
Professional Development Webinar Expand Digital Learning by Expanding Teacher Training
This discussion will examine how things have changed and offer guidance on smart, cost-effective ways to expand digital learning efforts and train teachers to maximize the use of new technologies for learning.

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

Money & Finance Opinion There Is No Bubble in Educational Technology: Not For Businesses That Actually Make Sense
Many people are wondering whether there is a bubble in educational technology. Has too much venture capital been invested in the sector? Have valuations gotten too high? My answer is that there is a bubble in ideas that won't work and a dearth of capital for ideas that can work.
Matt Greenfield
4 min read
Money & Finance Opinion Nice Test Scores, Can I Buy You?; The Future of Financing Talent
A Company called Fantex recently announced it will be selling stock in football superstar Arian Foster, SEC-approval and all. With this breakthrough, is it only a matter of time before we can invest in the future earnings of promising kindergartners?
Tom Segal
7 min read
Money & Finance Opinion EdTech Titans of Industry: A Reflection
This week marked the second annual EdTech Titans of Industry event in New York City featuring some of the top players in education: Diane Rhoten, Jonathan Harber, Gates Bryant, and George Cigale. Here are some of the highlights..
Tom Segal
3 min read
Money & Finance Opinion Mark it a Ten: Tech Acquirers Enter the World of Education
With the rise of ed-tech over the past few years, we have seen a steady stream of publishers, media companies, and private equity shops acting on the back-end of the venture market as the ultimate acquirers. But we have not seen a major technology company jump on board... until now, with Amazon's purchase of TenMarks
Tom Segal
3 min read