Education Technology & Services Market

Market Update Key Highlights Education Technology & Services Q4 2019 The top subsector stock performer in Q4 2019 was digital educational content & services, up 13.7% year-over-year On average, EBITDA multiples for the subsectors decreased 0.5x from the prior quarter and were down 0.8x on a year-over-year basis 2020 Forecast…Sustained Robust Deal Activity Focused on High Quality Assets and Strong Outcomes-Driven Business Models For several years now, we have been predicting continued consolidation within the education technology and services market. Merger and acquisition activity of all types within the sector has been robust, with overall transaction volumes repeatedly surpassing year-over-year levels by healthy margins. Even with ongoing strategic consolidation in the space, ever-increasing private equity interest in the education sector has been the primary driver of continued strong transaction levels and increasing valuations. A record amount of available capital, or “dry powder,” and elevated interest in software-as-a-service (“SaaS”) business models were the primary underlying factors driving private equity interest levels in ed tech businesses. Interest in high quality education providers has also been robust, underpinned by strong outcome-driven theses behind businesses built to solve the “achievement gap” and/or “skills gap” problem with a keen focus on value proposition to the consumer. In the early childhood segment, activity levels remain high, driven by continued professionalization and consolidation within an otherwise highly fragmented global market. And in the proprietary postsecondary sector, after a “decade of pain,” M&A has made a comeback with several new investments by private equity investors seeking premium operators in markets with strong supply/ demand imbalances. Additionally, blurring of the lines between higher education and corporate learning and development continues with strategic mergers between businesses serving the talent and education worlds on the rise. As in prior years, 2019 was marked by several notable and highly publicized transactions involving private equity groups, including: ƒƒBV Investment Partners’ acquisition of Veracross ƒMorgan Stanley Private Equity’s acquisition of Project Management Academy (Leeds Equity Partners) Providence Equity’s acquisition of TES Global (TPG Growth) ƒƒApax’s acquisition of MetaMetrics (Pamlico Capital) ƒWeld North’s (Silver Lake Partners) acquisition of Glynlyon (Linsalata Capital Partners) Frontline Education’s (Thoma Bravo) acquisition of Perennial EdTech (Alpine Investors) ƒƒArdian’s acquisition of Study Group (Providence Equity) ƒLeeds Equity Partners’ acquisition of VitalSmarts (Providence Equity) Gridiron Capital’s acquisition of Colibri Group (Quad-C Management) ƒƒProvidence Equity’s acquisition of n2y (Riverside Co.) ƒƒƒPending merger of Cengage (Searchlight, OMERS,) and McGraw-Hill (Apollo) PowerSchool’s (Vista Equity) acquisition of Schoology (JMI Equity) Clearlake Capital’s acquisition of Dude Solutions (Warburg Pincus) ƒƒTransom Capital’s acquisition of Scantron Wendel’s acquisition of Crisis Prevention Institute (FFL <ul style="display: flex;"><li style="flex:1">Partners) </li><li style="flex:1">The Halifax Group’s acquisition of StrataTech Education </li></ul>Group (Summer Street Capital) ƒThoma Bravo’s pending acquisition of Instructure Private equity groups were not the only drivers of activity; some of the largest transactions of 2019 were executed by larger strategic buyers: ƒƒGrand Canyon’s acquisition of Orbis (LLR Partners) ƒBertelsmann’s acquisition of OnCourse Learning (CIP Capital) and subsequent sale of the Financial Services business to Adtalem Global Education 2U’s acquisition of Trilogy Education (Highland Capital, Macquarie Capital, others) ƒKorn Ferry’s acquisition of Miller Heiman and other TwentyEighty assets (Providence Equity) ƒAdvance Publications’ acquisition of Turnitin (Insight Partners, Norwest Venture Partners) Education Technology & Services Market Update Q4 2019 | 2 2020 Forecast…Sustained Robust Deal Activity Focused on High Quality Assets and Strong Outcomes-Driven Business Models (cont’d) While long-term education investors remained active, the market has continued to evolve dramatically with the increased presence of a broad array of both technology and generalist investors desperately seeking higher-growth SaaS and other recurring revenue businesses, particularly those believed to be acyclical or countercyclical. With $2+ trillion of dry powder, ever-increasing pressure from limited partners to deploy that capital aggressively and a laser focus on high quality businesses, private equity interest in the education market has once again surpassed previous record levels. revenue visibility and serving markets that have acyclical or countercyclical attributes. With that underpinning, could 2020 be the year of education megadeals? TPG and Leonard Green have already announced plans to sell Ellucian. Instructure’s pending transaction with Thoma Bravo should close later in Q1 barring a successful shareholder intervention. Could this be the year that Providence looks to sell Blackboard? We also expect to see strong global activity in the early childhood education market segment and a continuation of strategic activity between the talent management world and Nowhere was this more apparent than at Lincoln International’s traditional higher education with the emergence of workforce <ul style="display: flex;"><li style="flex:1">fourth annual Growth Conference in November. The </li><li style="flex:1">solutions platforms. Higher education providers with strong </li></ul>value propositions serving high demand segments of the market (e.g., healthcare, cybersecurity, green technology) should also continue to see traction. The one significant limiting factor, however, will be the looming U.S. presidential election in November. Without clarity around the next administration, there are likely to be fewer proprietary post-secondary transactions. conference served as an excellent opportunity for investors to explore the growth drivers of education companies through presentations by privately-held businesses and a series of oneon-one breakout meetings. Of the ~60 presenting companies, we featured 10+ CEOs / Founders of education technology and services companies. Though they represented ~15% of the total number of presenters, these education companies participated in ~25% of one-on-one meetings conducted due to overwhelming demand from the private equity community. We expect 2020 to largely be more of the same. With a general perception that an economic slowdown is coming, investors will continue to focus on businesses with a high degree of forward In short, it should be another banner year for transaction activity in the education market. Education Technology & Services Market Update Q4 2019 | 3 Education Technology & Services Financial Performance Quarter-over-Quarter Price Performance <ul style="display: flex;"><li style="flex:1">Outperformers </li><li style="flex:1">Change </li><li style="flex:1">Underperformers </li><li style="flex:1">Change </li></ul><ul style="display: flex;"><li style="flex:1">2U </li><li style="flex:1">47.4% </li><li style="flex:1">K12 </li><li style="flex:1">(22.9%) </li></ul>TAL Education Group Lincoln Educational Services Chegg 40.8% 29.8% 26.6% RISE Education Cayman Blackbaud (16.5%) (11.9%) <ul style="display: flex;"><li style="flex:1">(8.2%) </li><li style="flex:1">Adtalem Global Education </li></ul>Quarter-over-Quarter Stock Indices Price Change 40 .0% 3 0 .0% 20. 0 % 10 .0% 0. 0 % (10 .0%) <ul style="display: flex;"><li style="flex:1">Q4-20 18 </li><li style="flex:1">Q1-2019 </li><li style="flex:1">Q2-2019 </li></ul>Education/Academ ic Publishers <ul style="display: flex;"><li style="flex:1">Q3-20 19 </li><li style="flex:1">Q4-20 19 </li></ul><ul style="display: flex;"><li style="flex:1">S&P 500 Index </li><li style="flex:1">Digital Edu c a t i o n a l Content & Services </li><li style="flex:1">Insti tutions/Workforce Solutions </li></ul>Two Year Relative Stock Indices Price Performance 150.0 % 20.8% 16.2% 15.2% 9.6% 125.0% 1 0 0 .0% 7 5 .0 % <ul style="display: flex;"><li style="flex:1">Digital Edu c a t i o n a l Content & Services </li><li style="flex:1">Education / Academic Publishers </li><li style="flex:1">Insti tutions / Wor kforce Sol uti ons </li><li style="flex:1">S&P 500 (^SPX) - Index Value </li></ul>Historical Enterprise Value/EBITDA Valuation Performance 20. 0 x 1 6 .0x 12. 0 x 8 . 0 x 4.0 x 0. 0 x <ul style="display: flex;"><li style="flex:1">Q4-20 18 </li><li style="flex:1">Q1-2019 </li><li style="flex:1">Q2-2019 </li><li style="flex:1">Q3-20 19 </li><li style="flex:1">Q4-20 19 </li></ul><ul style="display: flex;"><li style="flex:1">Digital Edu c a t i o n a l Content & Services </li><li style="flex:1">Education/Academ ic Publishers </li><li style="flex:1">Insti tutions/Workforce Solutions </li></ul>Education Technology & Services Market Update Q4 2019 | 4 Education Technology & Services Stock Indices Data YoY Revenue Growth NTM Revenue Enterprise Value / NTM % of 52 Stock Price Week High Market Cap Enterprise Value EBITDA <ul style="display: flex;"><li style="flex:1">Margin </li><li style="flex:1">Company Name </li><li style="flex:1">EBITDA </li><li style="flex:1">Revenue </li><li style="flex:1">EBITDA </li></ul>Digital Educational Content & Services <ul style="display: flex;"><li style="flex:1">2U, Inc. </li><li style="flex:1">$23.99 </li></ul>0.61 29.8% 71.5% 81.8% 78.6% 72.2% 88.8% 94.1% 61.8% 48.2% 99.1% 63.5% 98.3% 74.0% 75.4% $1,523 85 $1,681 67 $697 40 ($26) 12 69.3% 10.1% 9.1% (3.7%) 31.5% 18.9% 28.3% 40.0% (2.9%) 17.7% 2.4x 1.7x NM 5.3x 25.2x NM 3P Learning Limited <ul style="display: flex;"><li style="flex:1">Blackbaud, Inc. </li><li style="flex:1">79.60 </li></ul>37.91 3,815 4,586 4,579 1,841 4,410 4,698 4,730 1,763 17,340 8,771 1,873 57,725 437 <ul style="display: flex;"><li style="flex:1">926 </li><li style="flex:1">175 </li><li style="flex:1">4.8x </li></ul>9.6x 5.7x 6.0x 4.1x <ul style="display: flex;"><li style="flex:1">Chegg, Inc. </li><li style="flex:1">487 </li><li style="flex:1">138 </li></ul>334 (8) 51.6% (1.1%) 39.3% 51.5% (1.8%) 62.1% 12.4% 37.2% 67.2% 33.9% 38.2% Grand Canyon Education, Inc. Instructure, Inc. 95.79 48.21 121.25 8.44 <ul style="display: flex;"><li style="flex:1">836 </li><li style="flex:1">14.1x </li></ul><ul style="display: flex;"><li style="flex:1">NM </li><li style="flex:1">292 </li></ul>New Oriental Education & Technology Group Inc. Pearson plc 19,210 6,571 1,752 48,740 397 4,206 5,166 376 744 983 (66) 3,881 51 23.3x 8.9x NM 19.0% (17.5%) 36.1% 20.1% 16.0% 17.0% 19.0% 1.7x <ul style="display: flex;"><li style="flex:1">Pluralsight, Inc. </li><li style="flex:1">17.21 </li><li style="flex:1">5.0x </li></ul>5.5x 1.7x <ul style="display: flex;"><li style="flex:1">RELX PLC </li><li style="flex:1">25.20 </li></ul>6.99 10,737 254 15.2x 8.6x NM RISE Education Cayman Ltd TAL Education Group Mean <ul style="display: flex;"><li style="flex:1">48.20 </li><li style="flex:1">28,522 </li><li style="flex:1">28,107 </li><li style="flex:1">3,913 </li><li style="flex:1">625 </li><li style="flex:1">7.2x </li></ul>4.5x 4.8x 14.2x <ul style="display: flex;"><li style="flex:1">11.5x </li><li style="flex:1">Median </li></ul>Education / Academic Publishers Houghton Mifflin Harcourt Company Informa plc $6.25 11.35 58.7% 95.1% 91.6% 61.8% 99.1% 67.5% 84.0% 96.0% 81.7% 87.8% $777 14,207 2,727 6,571 48,740 436 $1,378 18,207 3,597 8,771 $1,428 3,816 1,891 $156 1,341 371 8.0% 26.4% 5.5% (1.8%) 12.4% 11.0% 2.4% 10.9% 35.1% 19.6% 19.0% 36.1% 2.9% 1.0x 4.8x 1.9x 1.7x 8.8x 13.6x 9.7x John Wiley & Sons, Inc. Pearson plc 48.52 <ul style="display: flex;"><li style="flex:1">8.44 </li><li style="flex:1">5,166 </li></ul>10,737 193 983 3,881 6 8.9x 15.2x NM RELX PLC 25.20 18.14 57,725 408 5.5x 2.1x Rosetta Stone Inc. Scholastic Corporation Wolters Kluwer N.V. Mean 38.45 72.97 <ul style="display: flex;"><li style="flex:1">1,331 </li><li style="flex:1">1,162 </li><li style="flex:1">1,705 </li></ul>5,246 <ul style="display: flex;"><li style="flex:1">157 </li><li style="flex:1">9.2% </li><li style="flex:1">0.7x </li></ul>4.2x 2.3x 1.9x 7.4x <ul style="display: flex;"><li style="flex:1">19,451 </li><li style="flex:1">22,070 </li><li style="flex:1">1,529 </li><li style="flex:1">7.5% </li><li style="flex:1">29.1% </li></ul>20.3% 19.3% 14.4x 10.5x 9.3x 8.9% <ul style="display: flex;"><li style="flex:1">7.8% </li><li style="flex:1">Median </li></ul>Institutions / Workforce Solutions Adtalem Global Education Inc. $34.97 27.39 638.99 95.79 20.35 17.61 67.5% 78.3% 84.5% 72.2% 54.4% 94.8% 80.8% 81.7% $1,888 422 $2,347 224 $1,092 287 N/A 34 (7.7%) (3.6%) N/A N/A 12.0% N/A 2.1x 0.8x NM 5.7x 0.7x 1.7x NM 6.5x NM 14.1x 5.0x 8.1x American Public Education, Inc. Graham Holdings Company Grand Canyon Education, Inc. K12 Inc. 3,396 4,579 797 3,795 4,730 682 N/A 836 N/A 334 136 703 16 (1.1%) 6.4% 40.0% <ul style="display: flex;"><li style="flex:1">13.1% </li><li style="flex:1">1,041 </li></ul>3,284 282 Laureate Education, Inc. Lincoln Educational Services Corporation Perdoceo Education Corporation Strategic Education, Inc. Mean 3,850 68 5,696 128 (2.0%) 7.0% 21.4% <ul style="display: flex;"><li style="flex:1">5.6% </li><li style="flex:1">2.70 </li><li style="flex:1">NM </li></ul>1.7x 8.1x 18.39 158.90 1,294 3,413 1,079 3,091 <ul style="display: flex;"><li style="flex:1">635 </li><li style="flex:1">138 </li></ul>271 <ul style="display: flex;"><li style="flex:1">9.3% </li><li style="flex:1">21.7% </li></ul>26.2% 20.0% 21.4% 7.8x 11.4x 8.7x 8.1x 83.7% 77.6% 80.8% <ul style="display: flex;"><li style="flex:1">1,033 </li><li style="flex:1">62.9% </li></ul>8.9% 2.7% 3.0x 2.2x <ul style="display: flex;"><li style="flex:1">1.7x </li><li style="flex:1">Median </li></ul>Note: USD in millions, except for stock price Source: Bloomberg, Capital IQ and company filings, as of 12/31/19 Market Intelligence 10/22/19: Adtalem Global Corporation, an Illinois-based education company, has agreed to sell its Brazilian colleges for $465 million 11/13/19: Guild Education, a Colorado-based education benefits company, has raised $157 million in a Series D fundraise led by General Catalyst 11/19/19: Surgent, a Pennsylvania-based professional education services company, received an investment from NexPhase Capital 11/20/19: Ellucian, a higher education software and services provider, recently conducted a bake-off to select financial advisors for a sale 12/4/19: Instructure, whose Canvas product is the “gold standard” for learning management systems, has agreed to be acquired by Thoma Bravo 12/4/19: Scantron, a developer of assessment and survey solutions for education among other sectors, has been sold to Transom Capital Education Technology & Services Market Update Q4 2019 | 5 Selected M&A Transaction Recap <ul style="display: flex;"><li style="flex:1">Closed </li><li style="flex:1">Target Company </li><li style="flex:1">Target Description </li><li style="flex:1">Acquiring Company </li></ul>Belgian training assets of Wolters Kluwer <ul style="display: flex;"><li style="flex:1">Announced </li><li style="flex:1">Provides consulting, information, software solutions and services for businesses </li><li style="flex:1">NCOI </li></ul>Announced Announced Announced Announced Announced Announced 12/26/2019 12/23/2019 12/20/2019 12/18/2019 12/17/2019 12/10/2019 12/5/2019 12/5/2019 12/4/2019 12/4/2019 12/4/2019 12/3/2019 11/30/2019 11/28/2019 11/27/2019 <ul style="display: flex;"><li style="flex:1">Findel Education </li><li style="flex:1">Manufactures and sells educational supplies online </li><li style="flex:1">Yorkshire Purchasing </li></ul>EdtechX Holdings Credentials Solutions Thoma Bravo Meten International Education Group Parchment Develops a global platform of next-generation education and training institutions Operates an eTranscript exchange community that connects high schools, community colleges, four year public and private universities, trade schools and employers Provides applications for learning, assessment and performance management through a SaaS business model worldwide Instructure Operates a community which provides news and information on innovation in education technology The International Society For Technology In Education EdSurge Adtalem Educacional do Brasil Children's Discovery Center Crisis Prevention Institute Flow Hospitality Training <ul style="display: flex;"><li style="flex:1">Operates post-secondary institutions </li><li style="flex:1">Universidade Estácio de Sá </li></ul>Endeavor Schools (Leeds Equity) Wendel Provides early care and education services to children Provides training and consulting in behavior management and dementia care Operates online learning and development platform for developing staff in hospitality industry MAPAL Software Global Mixed Reality and Immersive Learning Assets of Pearson Develops software programs that bring the "best of the web" directly and safely to home computers Global Immersive Group Sanoma Learning Develops and operates a cloud-based educational management software platform for schools Clickart Taller de Comunicació SchoolSpire Develops and delivers a comprehensive K-12 software platform that meets the curriculum, instruction, assessment and reporting needs of school districts Mentoring Minds Develops and hosts learning platforms and educational software for primary, secondary and higher education sectors <ul style="display: flex;"><li style="flex:1">itslearning </li><li style="flex:1">Sanoma Learning </li></ul><ul style="display: flex;"><li style="flex:1">Tembo </li><li style="flex:1">Assists education agencies in using data to improve their schools </li></ul>Creates online campus visit programs for colleges and universities Hoonuit <ul style="display: flex;"><li style="flex:1">YouVisit </li><li style="flex:1">EAB Global (Vista Equity Partners) </li></ul>Health & Safety Institute Transom Capital Group O2B Kids Early Education BARBRI Serves companies in electrical generation, oil and gas production, public utilities, paper and pulp and other general process facilities with e-Learning and onsite training Martech Media Develops assessment and survey solutions to education, commercial, financial, automotive, insurance, healthcare and government sectors worldwide Scantron Corporation Home Away From Home Altior Consulting & Training Pebbles Care Limited Fitzgerald Health Education Associates Operates preschools providing families with an education-focused environment for infant care, preschool, afterschool and summer camp services Provides skills training and assessment services for the legal profession Provides residential care homes and specialist school academies for young people aged 6–18 years Ardenton Capital Provides nurse practitioner certification preparation and continuing education services for healthcare providers Colibri Group (Gridiron Capital) Education Technology & Services Market Update Q4 2019 | 6 Selected M&A Transaction Recap (cont’d) <ul style="display: flex;"><li style="flex:1">Closed </li><li style="flex:1">Target Company </li><li style="flex:1">Target Description </li><li style="flex:1">Acquiring Company </li></ul>

Education Technology & Services Market

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