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Education Markets and Deals Roundup — 5th Edition

Education Markets and Deals Roundup — 5th Edition

We witnessed a increased M&A activity in the education sector both globally and in India, with Instrucure-Parchment and Allenhouse-Doubtnut being the marquee deals in the respective markets. This indicates the ongoing shift towards mega-players in the education sector, with larger companies actively growing and acquiring to improve and diversify their offerings.
We saw the trend of public edtech companies beating the market estimates continue, resulting their share prices bouncing back to 2021 peak levels. We can see the overall market continue to stabilize.

However, the private markets are yet to show promising signs with very limited funding activity in education market. Companies have realized the funding crunch and hence are also wary of utilizing the funds available in the most optimal manner.

Public Markets

Several major publicly traded companies were involved in merger and acquisitions that took place in the past month, with Instructure’s $795 million acquisition of Parchment and Wiley’s strategic divestment of its University services business to Academic Partnerships being the marquee transaction. EdTech companies, such as Duolingo and Udemy, have outperformed market expectations, with soaring share prices following impressive quarterly financial results. Despite broader economic uncertainties, the overall education market has shown stability, reflecting the growing significance of online and digital education.

B2C Companies

Rapid Round Up

a) Duolingo — Company’s Q3 results exceeded expectations, with earnings per share at 6 cents (compared to a 46-cent loss last year) and a 43% increase in total revenue to $137.6 million. Paid subscribers rose to 5.8 million, up 60% from 2022. The stock surged following the announcement. Duolingo also launched new music and updated math courses and over 40 language lessons on its app. Q4 revenue is expected between $145 million and $148 million, with full-year revenue projected at $598 million to $601 million, surpassing Market forecasts.

b) Udemy — Company reported a strong third-quarter revenue of $184.7 million, up 17% YoY, surpassing both management and analyst estimates. Udemy Business, the enterprise segment, contributed significantly with a 30% growth to $109.1 million. The company’s adjusted EPS of $0.05 exceeded expectations, marking its second consecutive quarter of positive adjusted EBITDA and free cash flow. Notably, Udemy plans to adjust its payment structure for instructors in 2024, reducing the share from 25% to 20%, aiming to enhance future gross margins for increased investments in growth initiatives and product innovation.

c) Arco — Company announced shareholder approval for the merger with Achieve Holdings at an extraordinary general meeting. Approximately 81.5% of Arco’s shares voted, with over 97.8% approving the Merger Agreement. The Merger is expected to close in Q4 2023, resulting in Arco becoming a privately held company, and common shares will be exchanged for a cash purchase price of US$14.00 per share, delisting from stock exchanges. Completion of the Merger is subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement and the Merger is expected to close within the fourth quarter of 2023.

d) 2U — Analysts have given a negative outlook for 2U, Inc. by lowering their forecasts for 2024. They expect the company’s revenues to be around US$915 million, down from the earlier estimate of US$1.0 billion, and anticipate a higher loss per share at US$1.26, compared to the previous estimate of US$0.49. The consensus price target also fell by 24% to US$5.40, indicating concerns about the company’s future. Industry data suggests 2U’s revenues are expected to decline by 1.0% annually until the end of 2024, in contrast to a historical growth rate of 17% over the last five years. This downgrade suggests that 2U may face challenges ahead, as both losses and revenue growth are expected to be below industry averages.

2. B2B Companies

Rapid Round Up

a) Pearson — Company, has partnered with Forage to integrate job simulations into Pearson’s MyLab and Pearson+ platforms. The simulations will be available to students in business and economics disciplines. Pearson+ users will later access Forage’s library of 350 job simulations, and starting in 2024, students can earn badges upon completion. The partnership aims to help students bridge the gap between college and the workplace, providing practical skills and visibility to potential employers. Forage’s simulations, used by millions, are developed with prestigious employers like Red Bull and Accenture, addressing the increasing demand for job skills in higher education.

b) John Wiley & Sons Inc. — Academic Partnerships (AP), a company aiding regional public universities in expanding online programs, is set to acquire Wiley University Services from Wiley . The combined company will support over 125 universities globally. AP focuses on online program support for public universities, while Wiley University Services delivers career-connected education programs. The merger aims to provide a best-in-class partner for universities, offering resources to scale online degree programs and improved technology for diverse student populations. The transaction is expected to close in early 2024, pending regulatory approvals.

c) Instructure Holding — Instructure, known for its learning management system (LMS) Canvas, is set to acquire Parchment, the market leader in digital education records, for approximately $795 million. Instructure expects Parchment to contribute over $100 million in revenue next year. The acquisition aims to create a comprehensive digital passport, verifying achievements and outcomes for learners. The move signifies the trend of consolidation in the education service market, with major providers like Instructure becoming one-stop service platforms.

3. Indian Education Companies

Rapid Round Up

a) Veranda Learning — Comapany’s shares surged more than 50% in the last month primarily due to strong Q2FY24 performance. The company reported robust Q2FY24 revenue of ₹100.27 crore, a 159% YoY growth, with an operating profit of ₹16.75 crore and an EBITDA margin of 15.10%. The net loss narrowed to ₹1.53 crore. For H1FY24, revenue was ₹170.75 crore, a 153.34% YoY growth. The total number of students trained in H1FY24 was 4,21,327. The stock, which debuted at ₹160.4 in April 2022, has seen an 84.8% increase over its issue price.

Private Markets

Funding in private markets remains stark, consistent with recent trends. Early and seed stage edtech companies with promising products continue to secure funding typically of smaller ticket size.
Further, a notable development in the M&A space occurred with the acquisition of Doubtnut by Allen Career Institute.

Rapid Round up

a) Offee — Mumbai-based edtech platform Offee has secured $0.63Mn in funding from JITO Incubation and Innovation Foundation, Bombay Industry Association, and Riidl. The funds will be utilized to enhance product development, scale operations, and expand into new markets. Offee, founded by Amit Shah, enables digital exams without the need for internet or computer laboratories, claiming to facilitate fair conduct of exams.

b) CENTA — Bengaluru-based, teacher accreditation platform CENTA has secured $1 million from angel investors. The startup plans to launch Teaching as a Service (TaaS) and enhance its platform’s tech capabilities. CENTA’s TaaS connects teachers globally with professional development opportunities and employers in edtech, schools, and government entities. The startup operates in teacher training, certification, and skill-based training, impacting over 1.5 million teachers across 7,000 locations in India.

Doubtnut —Allen Career Institute has acquired Doubtnut in a deal reportedly valued at $10 million, marking a significant shift for the edtech firm that had previously raised over $52 million. Doubtnut’s learning app, which aids students in solving math and science problems through photo submissions, gained attention in 2020 for its innovative use of machine learning and image recognition. Despite earlier attempts by Byju’s to acquire Doubtnut for as much as $150 million in 2020, disagreements on valuation with potential investors, including Prosus Ventures, led to no deal materializing. Allen aims to integrate its curriculum with Doubtnut’s platform to enhance the learning experience for students.