Firms help foster digital education trend

With schools facing tighter budgets, digital-based curriculums are playing a larger role in the classroom and in private equity firms' portfolios.

Private equity firms are playing a role in the evolution of education from traditional brick and mortar schools to online distribution platforms that deliver lessons to underserved students.

A string of recent acquisitions show that many private equity firms are developing an interest in digital models and products within the education sector. Just this week, European buyout firm Permira made its first transaction in the sub-sector, acquiring Renaissance Learning, a producer of technology-based school improvement and student assessment programs for kindergarten through grade 12 schools, for $440 million cash. 


In July, Weld North, a private equity partnership between Kohlberg Kravis Roberts and former Kaplan chief executive officer Jonathan Grayer, acquired e-learning and digital education company Education2020. KKR invested “hundreds of millions” of dollars in the partnership upon its formation in 2010. Grayer said the private equity firm will use Education 2020 as a base to expand its digital education curriculum and services platform.

“K-12 digital curriculum is a market area that started 10 years ago, became real five years ago and only now are you beginning to have companies that are winners and losers, companies that have meaningful amounts of revenue. There’s going to be some interesting M&A activity in the space,” Weld North vice chairman Steve Berger said. “I think the first driver is the incredible efficacy of these programs for particular populations of kids.”

Private equity firms have not limited themselves to K through 12th grade curriculums. In July, Providence Equity Partners acquired higher education communications platform Blackboard for $1.64 billion. Hellman & Friedman bought software company Sungard’s higher education businesses in August for $1.78 billion.

There has been a growing demand for products that allow students in rural or underserved regions to learn remotely, which has accounted for the rapid growth of the sector, according to several sources. 

Creating a great K-12 digital curriculum company requires a growth-capital orientation to investing.

Steve Berger

Middle class growth in emerging markets, as well as established markets, will likely generate a greater demand for education, which in turn is expected to become increasingly reliant on digital products as a means of driving down costs, sources said. As demand for education increases in both emerging and established markets, growth capital will be an important factor in the sub-sector’s development.

Meeting growing demand in remote areas through standard classroom strategies and curriculums is either impossible or insurmountably expensive for many school districts. The development of companies and products that meet that demand presents a growth opportunity for private equity and venture capital firms, sources said.

“Creating a great K-12 digital curriculum company requires a growth-capital orientation to investing,” Berger said. Textbook companies, whose products typically indicate the direction of nationwide curriculum, have also been moving into the sector, he added.

Schools are looking and saying, 'How do we get some of that utility with spending less money?' and we're seeing a lot of that with our digital products.

David Bainbridge

Even within more traditional operational contexts, many schools and universities could adopt digital platforms, like Blackboard, as a means of trimming costs and improving efficiency under heightening budgetary pressures, sources said. Private equity backing will allow many of these companies, typically acquired in sub-$100 million transactions, to scale their operations and reach a wider client base.

“Schools are looking and saying, ’How do we get some of that utility with spending less money?’, and we’re seeing a lot of that with our digital products,” Veronis Suhler Stevenson partner David Bainbridge said. “It’s a more efficient, cheaper solution for school. From a business model perspective, for us … it tends to have higher profits.

VSS has several holdings in the sector, including Cambium Learning Group, which provides intervention curricula, educational technologies and specialized for students in pre-K-12, and, which helps institutions place students in careers post-graduation.

Despite high growth potential, billion-dollar private equity deals like Blackboard and Sungard will likely remain outliers within the sub-sector. Weld North’s acquisition of Education2020 was reportedly valued around $50 million.

“The major reason it will be the rare major private equity firm that plays in this space is because there’s not that many big companies [to buy] and it’s really an industry for growth capital,” Berger said. “If we succeed at that goal, we will build a relatively interesting and valuable portfolio of companies … And how we get out that, how we monetise that, time will tell, it will never be an easy space to put a lot of leverage on.”