School & District Management

More Education Companies Playing ‘Let’s Make a Deal’

By Rhea R. Borja — April 14, 2004 6 min read

Jostling with each other to tap into the growing education market, the number of pre-K-12 companies merging with other companies, swallowing smaller ones, or selling parts of their businesses surged 26 percent last year.

There were 34 mergers and acquisitions in the sector in 2003, compared with 27 the previous year and 12 in 2000, according to Eduventures Inc., a Boston research firm that tracks the education market. Last year’s figure matches the number of deals in the pre-K-12 market in 2001.

The requirements of the federal No Child Left Behind Act, along with an improving economy, mean more moneymaking opportunities in areas such as tutoring, student assessment, and online content, industry observers say.

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The accompanying table, “School Deals.”

Consequently, more education companies are merging with or acquiring companies that offer complementary services to position themselves as one-stop shops for their school clients, said Matthew Stein, a senior analyst at Eduventures. He is a co-author of a recent report on activity in the education industry.

“They obviously [want] to gain new market share in their existing markets and tap into new ones,” Mr. Stein said. “So you’re seeing a lot of clustering happening, and solution-building in the marketplace.”

Those shifts have happened not just at the pre-K-12 level, but in higher education and corporate training as well. The number of mergers and acquisitions in the postsecondary market rose even higher than in the pre-K-12 market, from 29 in 2002 to 41 last year, or a 41 percent increase. All told, the number of mergers and acquisitions in the education industry skyrocketed 57 percent last year.

‘Natural Marriage’

Mergers and acquisitions in the pre-K-12 world occurred across the spectrum of services, but most of the action was in the curriculum market, according to Eduventures. One of the major deals last year was the $52 million acquisition of San Diego-based Lightspan Inc. by rival Plato Learning Inc.

Both companies have struggled over the past few years to keep up with technological advances and respond to educators’ needs, school reform trends, and state and federal legislation, some analysts say.

Through the merger, Plato Learning, which offered instructional software primarily to middle and high schools, acquired Lightspan’s online elementary courses and software as well as its younger audience. More than 1,500 school districts used Lightspan’s products and services.

“It was a natural marriage,” said John Kernan, the former chief executive officer of Lightspan and now a member of Plato Learning’s board of directors. “By putting the two companies together, you have a range of products that are strong in every area, with very little duplication.”

Plato Learning, based in Bloomington, Minn., also inherited another content-delivery niche through Lightspan’s online subscription format and, perhaps more important, acquired Lightspan’s popular computer-based assessment system, known as eduTest.

Lightspan wasn’t Plato Learning’s only acquisition last year. The company also snapped up the British-based New Media (Holdings) Ltd., which develops science and math instructional software for secondary schools, for $6.8 million.

The recent deals mean that Plato Learning is better equipped to serve schools, Mr. Kernan maintains. Not only has the company expanded its course offerings, it now also offers academic instruction across grades. In addition, it can provide schools a way to measure student achievement.

The acquisitions last year are part of a long-term strategy to dominate every part of the market the company is in, said John Murray, Plato Learning’s chairman and chief executive officer.

Since 2000, Plato Learning has acquired seven education companies, to the tune of about $120 million. They include NetSchools Corp., a curriculum- and standards-management company; Wasatch Interactive Learning Corp., which developed interdisciplinary course software for grades K-8; and Teachmaster Technologies Inc., for its curriculum- management tools.

“Everything we’ve done in terms of mergers and acquisitions was part of our strategic plan to build the biggest online curriculum, curriculum-management, professional-development, and low-stakes- assessment company,” Mr. Murray said.

The company is on its way. Plato Learning dominates the instructional-software market at the high school level in revenue and number of schools served, and it is second behind Pearson Education, the Upper Saddle River, N.J.-based educational publisher, at the middle and elementary levels, according to industry reports. It also recently signed a 10-year, $17 million contract with Idaho to provide a comprehensive system for student information, curriculum management, and data analysis and reporting.

Not incidentally, revenues are up: Plato Learning recorded $95 million in revenues in 2003, up from “basically nothing” in 1997, Mr. Murray said.

Plato Learning has a large presence in the education market, Mr. Stein of Eduventures said. The challenge now, he argued, is for the company to streamline all of the products and services—along with sales forces and administrative overhead—acquired from other companies for maximum efficiency.

Special Niches

Help for students with special learning needs has also proved to be an increasingly key market, according to analysts.

The Aspen Education Group, a Cerritos, Calif.-based company that manages 46 alternative education programs or schools in 10 states, in November acquired Cedars Academy, a private boarding school in Bridgeville, Del., for students with attention difficulties. That deal immediately followed Aspen Education’s acquisition of Explorations Inc., a group of Montana-based wilderness and experiential programs for troubled students.

Since 1994, Aspen Education’s revenue has grown from some $10 million to almost $100 million.

“We’ve developed a real niche in a national referral base for underachieving kids,” said Elliot A. Sainer, the company’s chief executive officer.

Meanwhile, two of 2003’s big deals involved large companies selling off their pre-K-12 education businesses.

The fast-growing higher education market was the chief reason that Sylvan Learning Systems Inc. sold its K-12 businesses last March to concentrate on expanding its online and international higher education services. The Baltimore-based company sold its tutoring and other K-12 services for $300 million to the Apollo Management Group, which formed a new company, Educate Inc., to oversee those services.

Meanwhile, food- and facilities-services giant Aramark Corp. also got out of pre-K-12 education, though it still provides school food and maintenance services.

Last March, the Philadelphia-based Aramark announced it was selling its early-education-resources division for $225 million to a child- development-center company, Knowledge Learning Corp. The San Rafael, Calif.- based company is a subsidiary of Menlo Park, Calif.-based Knowledge Universe Inc., which owns educational, technology, and business-services companies and is chaired by the financier Michael R. Milken.

Aramark’s education divison, which includes the child-care chain Children’s World Learning Centers and an after-school-services unit called Medallion School Partnerships, generated $455 million in sales in 2002, up from about $400 million in 1999.

“This move will enable us to focus on our food and support services and uniform and career-apparel business segments,” Joseph Neubauer, Aramark’s chairman and chief executive officer, said in a statement at the time. "[Aramark Educational Resources] can better realize its growth potential by aligning with a company focused more exclusively on the early-education and child-care segments.”

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