September 23, 2013 EDUCATION M&A ACTIVITY IS ON AN UPSWING

Berkery Noyes’ Education report for first half 2013 showed an increase in transaction activity. Deal volume improved five percent on a half-to-half year basis, from 128 to 135 transactions. Aggregate value fell 16 percent, from $4.57 billion in second half 2012 to $3.84 billion in first half 2013.

Capita, a UK based provider of business process outsourcing (BPO) and professional support services, was the most active acquirer in first half 2013 with four deals in the Education Industry. Pearson was also an active acquirer with three transactions in first half 2013. Two of these deals focused on assessment and testing software.

Pearson’s acquisition of Learning Catalytics was centered on cloud based learning analytics and assessment for Higher-Ed, whereas the acquisition of Exam Design focused on exam development software and hiring certification tools for businesses. Meanwhile, McGraw-Hill Education acquired ALEKS Corporation, which develops assessment software for both the K-12 and Higher-Ed markets.

The education sector is going through a period of transition. This was ignited by the recession, which highlighted the high cost of education as well as student debt loads, poor academic outcomes, and unemployment after graduation. These factors have created an environment where many are questioning the value of the traditional education models.

There is currently an opportunity for acquirers to take advantage of the digital adoption in education and the potential to create new pathways for instruction and credentialing. We expect to see the rise and use of newer learning management systems, adaptive/personalized learning and other platforms that facilitate instruction in both an online and ground environment. In addition, the proliferation of tablets has accelerated the pace at which students are utilizing digital tools and content, allowing the introduction of new entrants into the space and compelling incumbent education providers to evaluate new technologies and models. All of this bodes well for future M&A activity.