The increasing use of data generated by education technology in K-12 is driving more sophisticated conversations among dealmakers looking to buy or sell companies that serve schools.
Under the system that prevailed in the market for years, a small group of education companies dominated the landscape because they could use large sales forces to sell a wide variety of products. That limited the ability of smaller companies to emerge and attract the attention of potential buyers. But that environment is changing.
Today, by looking at top mergers and acquisitions in recent years, it鈥檚 possible to see the influence of educational efficacy on business decisions, said Deborah H. Quazzo, the founder and managing partner of GSV Advisors, a Chicago-based financial-advisory company in the education sector. 鈥淚t was much harder to measure efficacy in a world where we didn鈥檛 have data and digital learning,鈥� said Ms. Quazzo.
Now, the 鈥渞eturn on education鈥� concept should be the one driving companies鈥� value and viability rather than the size of their sales forces, according to Ms. Quazzo. To establish an 鈥淩OE,鈥� which is related to the business concept of 鈥淩OI,鈥� or return on investment, Ms. Quazzo said companies need to show the value of their products using one of four results: 鈥淵ou鈥檙e either improving learning outcomes, increasing access to education (think MOOCs), driving down costs, and/or improving leverage to the teacher with a tool or platform that allows teachers to access more students.鈥�
Tracking Impact
Education Week asked GSV Advisors to identify top mergers and acquisitions in K-12 education over the past five years, using criteria showing an impact on education and the industry.
Ms. Quazzo pointed to companies acquired this year that she said demonstrated high efficacy: Truenorthlogic, a Sandy, Utah-based professional-development management platform provider for educators; and Imagine Learning, a Provo, Utah-based language- and literacy-software program for English-language learners, special education students, and early-childhood education. The two were acquired by Weld North LLC, a New York City-based investment company.
GSV Advisors LLC, a Chicago-based investment bank that connects education entrepreneurs and growth companies with investors identified major transactions in the educational technology marketplace over the past five years for Education Week.
鈥� McGraw-Hill Education鈥檚 purchase of Engrade, an instructional-improvement platform, in 2014, and ALEKS, the developer of an adaptive- learning technology, in 2013. McGraw-Hill Education itself was acquired by Apollo Global Management LLC for $2.5 billion in 2012.
鈥� Amazon Inc.鈥檚 2013 acquisition of TenMarks, which produces Web-based math programs. That transaction signaled the online retailer鈥檚 entry into education.
鈥� Archipelago Learning鈥檚 acquisition by Plato Learning in 2012, which created edmentum, an online learning provider.
鈥� Blackboard鈥檚 sale in 2011 for $1.64 billion to Providence Equity Partners and 2012 acquisition of Moodlerooms, an open-source learning provider.
鈥� Rosetta Stone鈥檚 2013 purchase of Lexia Learning, an English-reading-product company.
鈥� Wikispaces鈥� sale in March to TSL Education, a London based educational publisher and worldwide teachers鈥� network. TSL was bought by U.S. private-equity firm Texas Pacific Group in 2013.
鈥� News Corp鈥檚 acquisition of Wireless Generation, an ed-tech company, in 2010, which led to the formation of Amplify.
鈥� 笔别补谤蝉辞苍鈥檚 2011 acquisitions of Schoolnet, an instructional improvement provider, and Connections Education, the operator of Connections Academy, a virtual education provider.
GSV Advisors also searched for transactions with significant impact as 鈥渕arket validations,鈥� meaning they demonstrated enough value to attract more capital to the K-12 market. The company also identified deals that drew new interest to the market, such as Amazon鈥檚 entry into the K-12 marketplace with its acquisition of math startup TenMarks in 2013鈥攐r bellringers, such as the $1.1 billion acquisition of Renaissance Learning by Hellman & Friedman, a San Francisco-based private-equity firm.
Ms. Quazzo cited three other examples of market validations: News Corp.'s acquisition of Wireless Generation, an ed-tech company, in 2010, which led to the formation of Amplify; and the Pearson acquisitions in 2011 of Schoolnet, an instruction management company, and Connections Education, which operates Connections Academy, a K-12 virtual education program. They were 鈥渢errific market validations,鈥� she said.
Validations from educators are another matter, with several experts saying most administrators and teachers pay little attention to 鈥渨ho owns what鈥� in the ed-tech world.
David A. Irwin, who consults with top school district officials in the country in his capacity as managing partner of the K-12 education practice at Gartner Inc., an information-technology research and advisory company, said, 鈥淥bviously, [educators] follow Pearson, and Pearson gobbling up all the different vendors,鈥� he said. 鈥淚 haven鈥檛 heard them being concerned about the larger conglomerates. They get excited that [companies] are finally coming to market with solutions.鈥�
