Q4 Update: PreK-12 Education

The PreK-12 education sector continues to be very active in mergers and acquisitions, with a large number of transactions recorded in the industry this year.  Transactions are occurring in virtually every sector of the industry – Education Services, Educational Publishing, Assessments, Tutoring, Intervention/Special Education, Technology Providers, Consumer Education Products, Marketing & Administrative Solutions, Student Services and Talent Management – and they are being completed by both corporate and private equity buyers alike.

M&A activity is being fueled by the growth and attractiveness of the space.  The market is huge, estimated at $1.5 trillion in the U.S., with macroeconomic factors driving growth of 6% annually projected through 2017.  Private-sector companies stand to benefit, as the educational institutions look for supplemental resources, education technology and products, and specialized outsourced services to help solve the myriad of problems facing schools.

Much of the market’s demand is originating at the user level – parents and students seeking better offerings and improved outcomes.  They recognize that success in school requires their involvement in the process.  As a result, early childhood and supplemental education demands are prominent, and are supported by two fundamental shifts:

1. Parents believe they need to take a more active role in their child’s education. Growing concern over the quality of education and increasing competition for college admission is driving parents to access supplemental programs and products to better educate and help prepare their children for the process.  These tools, which range from in-home supplemental aids to outside tutoring, counseling, and other services, are being used starting at the pre-K level and extending all the way through high school.
2. Parents are seeking better educational experiences and outcomes for their children and are often willing to financially contribute to reach these objectives.  Female participation in the workforce is now ~60% and ~42% of households have two full-time earners, meaning many families are better able to spend on supplemental educational needs.  In dual-income households parents also generally lack the time required to address such needs themselves.  As a result, they are investing in the products, technology and services that they feel are necessary to allow their children to be competitive.

Supported by these fundamentals, the education market is strong and growing, providing ample opportunity for private sector firms in the industry and contributing to a healthy level of M&A activity in the space.

Notable Transactions

Several notable M&A transactions have been recorded in the PreK-12 Education industry in recent months.  The full list of transactions shows companies in all sectors and of all sizes continue to be targets of active buyers in this industry.  One interesting trend is the proliferation of targets that sell directly to students and parents looking to enhance academic success.  Companies catering directly to the user market enjoy the benefit of being shielded from the purchasing bureaucracy associated with selling to school districts, an advantage that is apparently not lost on buyers.  Profiles of several notable transactions follow, with a more inclusive summary of recent deals on the following pages.

Private Equity investment in iParadigms, LLC (Pending) – iParadigms is being acquired for $752 million by Insight Venture Partners, a leading global private equity firm focused on high growth investments in the technology sector, and GIC, Singapore’s sovereign wealth fund.  iParadigms is a leading provider of cloud-based educational technologies to prevent plagiarism, verify content, and evaluate student learning.  Its flagship product, Turnitin, is used by over 24 million students and 1.6 million educators at 10,000 institutions worldwide to improve student outcomes. The partnership is expected to provide iParadigms with the resources and support to accelerate product development and expand into international markets.  Warburg Pincus, a leading global private equity firm, was previously the majority owner of iParadigms, investing in the company in 2008.

Tutor.com acquiring Education Holdings 1, Inc. (Pending) – Tutor.com has agreed to acquire Education Holdings 1 from Charlesbank Capital Partners, LLC.  Education Holdings 1, aka Princeton Review, is the college test prep company, founded in 1981 and acquired in 2012 for $33 million by private equity firm, Charlesbank Capital.  The acquisition will greatly expand Tutor.com’s reach in the consumer tutoring market and Tutor.com sees the addition as a way of offering a continuum of services from elementary through graduate school, with the college process starting at an earlier age.  Tutor.com started offering online tutoring services to institutional clients such as military families, libraries and companies in 1998.  In January 2013, the company was acquired by IAC (InterActiveCorp), after which it focused on providing its services directly to consumers.  Today, Tutor.com has an estimated 3,000 tutors and facilitates an average of 6,000 tutoring sessions during a school night. 

ACT acquires Pacific Metrics Corporation (July 2014) – ACT, a leader in college and career readiness, acquired Pacific Metrics Corporation, a provider of education technology solutions with about 45 employees.  Pacific Metrics provides educational assessment and learning tools including online testing, automated scoring and reporting and psychometric research and analysis. Its world-class psychometric software, advanced analytics capabilities and online systems will provide ACT with new capabilities.  Jon Whitmore, ACT chief executive officer, said “This move will enable ACT to better serve our customers and expand the reach of our solutions, giving us the opportunity to positively impact the lives of many more individuals.  It will further our mission of helping people achieve education and workplace success.”  ACT’s backing and guidance is expected to enable Pacific Metrics to expand its reach and impact.

SchoolChapters, Inc. acquired by HMH (July 2014) –  Houghton Mifflin Harcourt (HMH) acquired SchoolChapters Inc., a firm with about a dozen employees, as HMH continues to invest in cloud-based technologies.  A publisher with a long track record in textbooks, HMH is evolving into a digital education company.  It has made several recent acquisitions aiming to provide more digital content for teachers and students. Earlier in 2014, HMH acquired Curiosityville, an online tool designed to help children between the ages of 3 and 8 develop learning skills through “playful exploration and discovery” and Channel One News, a company that transmits daily news programs to nearly 5 million upper elementary, middle, and high school students across the United States.  SchoolChapters provides childhood education online portfolio management solutions that allow educators and students to document, record, and share learning experiences and showcase knowledge and achievements while aligning these portfolios to educational standards across the preK-12 and college spectrum.  Such technology is believed to transform the learning experience, drive teacher effectiveness, and improve student outcomes.

Chegg acquires InstaEDU (June 2014) – Chegg, originally a textbook resale site that evolved into a varied student hub, acquired InstaEDU for $30 million cash.  InstaEDU is a student tutoring marketplace that provides online, on-demand video tutoring services to high school and college students.  Chegg was attracted to the $60 billion global tutoring market and views the addition as more than just a tutoring business. The combined platform will allow the company to connect students in certain areas of study, grades and material with the right tutors as well as with the right scholarships and test prep.  The acquisition is a strategic addition for InstaEDU as well.  The tutoring company, which specializes in pairing students with tutors who have similar interests, now has access to Chegg’s 13 million high school and college students. 

Shore Capital Partners acquires My Therapy Company and Cumberland Therapy Services (May 2014) – Shore Capital recapitalized MyTherapy and acquired Cumberland to form a school-based therapy services platform.  Both companies provide speech language pathology, occupational therapy and related services to a variety of public school districts and private learning centers.  The combination creates a national school therapy provider with two distinct but complementary business models.  Cumberland has a proprietary sales and recruiting organization focused primarily on small and mid-sized school districts, while MyTherapy has long-standing relationships with many of the largest school districts in the U.S. and offers managed therapy programs which often include on-site administrative support.  Integrating the two models creates a service provider able to meet a broad range of service needs and produce positive outcomes for children and school districts.  School districts are required by federal law to provide specialized services to students who qualify and an estimated 6.5 million children now receive special education services, such as speech and occupational therapy.  Many school districts are finding that it is easier and more cost effective to utilize a third-party firm to recruit and manage qualified therapists and coordinate these specialized services.  Shore Capital Partners is a private equity firm specializing in middle-market transactions.  It plans to grow its Therapy Services platform through a combination of add-on acquisitions and organic growth.

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