Following a fundraising spike during the covid-19 pandemic, private equity interest in the education sector has fallen flat.
Capital raised for education-focused private equity funds reached an all-time high of $1.2 billion in 2021, according to Private Equity International data, as the pandemic forced students and teachers online. In the years since, interest has dwindled, with PEI data showing that fundraising dropped by 72 percent the following year.
The figures have since returned to pre-pandemic levels, with the first three quarters of 2024 seeing roughly the same amount of capital raised as full-year 2018 ($200 million and $191.7 million, respectively).
In terms of asset class, venture capital has been by far the most active in education fundraising. Of the 10 largest education-focused funds to ever be raised, nine were VC funds, according to PEI data.
The largest such fund was raised by Brazilian VC firm Crescera Capital in 2014. Latin America-focused BR Educacional FIP II closed on 800 million reals ($340 million at the time). There is only one growth equity fund on the list of 10 funds: Sterling Partners‘ $200 million Sterling Small Market Education Fund, which closed in 2015.
Deal value also peaked around the pandemic. According to data from S&P Global, private equity and venture capital investment in the global education services sector fell to a three-year low in 2023, with transaction value dropping by nearly half. As of April 2024, transaction value had only reached $260 million, compared with $10.26 billion for full-year 2020.
The previous highs were driven by increased investment in education software and edtech during the pandemic. S&P notes that this area of the market has since weakened as investors have begun prioritising quality deals amid a tighter interest rate environment.
EQT was involved in the two largest education-related deals that took place last year, according to data from S&P.
The largest was the privatisation of Japan-based education publishing firm Benesse Holdings for roughly $1.32 billion by an investor group that included EQT Private Capital Asia. The second largest was the acquisition of US-headquartered sports education services firm IMG Academy for $1.25 billion by an investor group comprising Nord Anglia Education and EQT Private Capital Asia.
Private equity’s increased involvement in the education sector at the height of the pandemic proved controversial, particularly in the US.
In a 2022 report, the Private Equity Stakeholder Project noted that PE-owned firms were becoming increasingly involved in curriculum development and test administration in the US. US federal lobbying by such firms reached a peak of $1.12 million in 2021, up from an average of $848,000 over the preceding six years.
There are no federal education standards in the US, PESP notes; each state sets the standards for their individual curricula. As a result, PE portfolio companies that provide products and services to schools are increasingly being granted a say in the content students learn, too.
PESP gives the example of New York-headquartered Veritas Capital, which at the time owned two education companies each serving more than 90 percent of all school districts in the US. One of these firms, Cambium Learning, acquired the assessment division of American Institutes for Research, a non-profit that had been responsible for administering 60 million standardised tests across 25 US states, in 2020.
“As private equity investments in this sector grow, districts, regulators, communities and firms themselves must consider whether a for-profit model is compatible with students’ best interests,” the report notes.
