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Education Markets and Deals Roundup — 2nd Edition

Education Markets and Deals Roundup — 2nd Edition

As the funding winter continues in Edtech with sparse investments and frequent layoffs, companies are now turning their attention towards sustainable growth, driven by the AI revolution in the industry. Companies like Chegg, Coursera and Pearson recently have started to integrate Generative AI to offer more personalized and interactive learning solutions.

Early stage edtech companies vulnerable to AI disruption with limited capabilities to adopt AI, are at crossroads to get merged with an larger entity or perish.

This can been evidenced in the high volume of M&A activity within industry and shutdowns/layoffs.

Public Markets

The Edtech Markets show signs of stabilization, evidenced by modest and clustered growth rates within the 10% band. While it is premature to expect a rebound to the glory days of 2020 and 2021, the critical focus now lies in maintaining consistent growth over the coming months.

B2C — Global Companies:

Rapid Round up:

a) IDP: Company recently made a strategic move by acquiring the UK-based student peer chat service, ‘The Ambassador Platform.’ The platform serves as a facilitator for conversations between current and prospective students at universities, offering both one-on-one and group sessions.
The acquisition will accelerate the company’s plans to incorporate peer-to-peer engagement into its student placement business. By leveraging The Ambassador Platform’s capabilities, IDP aims to further differentiate its offerings to students and universities. The move appears to capitalize on the “explosive” growth in student placements experienced by IDP in Australia during 2022 and 2023. With this acquisition, IDP seems keen on expanding its peer-to-peer tools while entering new markets like the UK and potentially beyond.

b) Chegg: has faced challenges with the rise of AI chatbots like ChatGPT, leading to a 62% drop in its stock value and layoffs. To combat this, Chegg is developing CheggMate, an AI-powered study helper using GPT-4. The company’s revenue has already declined, and it faces the challenge of retaining customers after the pandemic-driven boost to its business. After its share price nose dived 50% in May, the stock has stabilized in the last month but whether Chegg can withstand the ChatGPT threat and pivot its AI service effectively will be crucial for its future success.

c) Coursera: Company’s latest advancements in AI-focused education are set to revolutionize the learning experience. With the integration of generative AI, students can expect highly tailored and interactive courses, while educators benefit from an AI-assisted course builder for efficient content creation. Moreover, the AI-powered virtual coach will soon be at learners’ disposal, offering expert guidance and personalized feedback, further enhancing the educational journey.

d) TAL Education: TAL Education has unveiled a significant project named MathGPT, a mathematical model designed for math enthusiasts and research institutions worldwide. The model will be equipped with problem-solving and teaching algorithms and is set to be launched later this year. Given the rising prominence of AI in the education sector, this venture aligns with the growing demand for personalized learning experiences and could have far-reaching implications for the industry. Moreover, the success of OpenAI’s ChatGPT and similar models indicates the potential market for specialized AI models in various domains, further highlighting the significance of TAL’s MathGPT initiative

Featured Transaction: Goldman takes Kahoot! private

Oslo based educational game platform, Kahoot! got acquired for $1.72Bn
Kahoot! was founded in 2012 by Morten Versvik, Johan Brand, and Jamie Brooker. It strives to make it easy to create, share, and play learning games or trivia quizzes in minutes. Furthermore, it combines fun and social ways to unlock the learning potential within the learners, regardless of age or ability. The platform has categorized its offerings into four categories — School, Work, Home, and Academy.

Kahoot! is going private following a voluntary cash offer of $1.72 billion from consortium of Goldman Sachs Private Equity, General Atlantic, Kirkbi invest, Glitrafjord AS (a vehicle controlled by Kahoot!’s CEO Eilert Hanoa), and other undisclosed investors and management shareholders.
By delisting from the stock market, Kahoot will avoid the fluctuation of the public market while continuing to have access to a pool of well resourced investors to fuel its growth. The acquisition is expected to close in the second quarter of 2023.

2. B2B — Global Companies

Rapid Round Up:

a) Pearson Plc: has announced its adoption of artificial intelligence (AI) in its products to enhance teaching and learning.
Language models will be used to create algorithms that assess global skill demands and recommend career paths to users. Generative AI tools are being developed to guide students in higher education and create quizzes and practice problems. Pearson+ will incorporate AI to summarize video content. Additionally, an open response assessment AI will provide real-time feedback on writing and speaking improvements for the English Language Learning product. Aim is responsible and thoughtful use of AI while leveraging its depth of content and data to benefit learners and educators.

b) PowerSchool: has announced the purchase of SchoolMessenger, a prominent provider of K-12 communication tools in North America, for $300 million. The acquisition is set to be finalized in the third quarter of 2023 and will be funded using existing cash and credit facilities. The deal aims to strengthen PowerSchool’s educational solutions by integrating SchoolMessenger’s communication platform into their Student Information Cloud.

c) John Wiley & Sons Inc: A national shareholder rights litigation firm, had announced that it is investigating claims on behalf of investors of John Wiley & Sons, Inc. for violations of the securities laws. The investigation focuses on whether the Company issued false and/or misleading statements and/or failed to disclose information pertinent to investors.

3. Indian Education Companies:

Rapid Round up:

a) Aptech: share price normalized after surge in its price post declaration of bonus in the ratio of 2:5. Although Aptech shall continue to bet on its expansion strategy to Tier II and Tier III cities

b) S Chand and Company: Company closed FY23 with highest operating revenue, highest EBITDA, and highest PAT over the past five years, surpassing pre-Covid levels. To sustain growth, S Chand plans to capitalize on the National Curriculum Framework (NCF) launch, providing innovative content for students and teachers. Their key strategic priorities are developing NCF-compliant content, engaging with schools to boost adoption.

Private Markets — India

While Byju’s auditor and 3 board members resigned, on a positive note it was reported that Byju’s was able to make up the shortfall to EPFO.
Moreover, edtech startup Frontrow faced challenges in scaling its revenue, leading to its shutdown. Skill-Lync also had to layoff 225 of its employees.

Equity Financing

Rapid Round Up:

Investors continue to bet on innovators in the space, albeit with a lot more financial scrutiny. A lot less participation by marquee Indian VCs, as they limit their exposure to the EdTech ecosystem in India.

2. Mergers and Acquisitions

Rapid Round Up:

As the market got crowded and funds dry up, bigger companies are finding lucrative opportunities to acquire companies to consolidate their positions and enter new markets/segments.

LoEstro Advisors — The Best Advisor to Education Leaders in India