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Education Markets and Deals Roundup — 6th Edition

Education Markets and Deals Roundup — 6th Edition

Given the contraction of funding activity in private education, the trend of focus on sustained profitability which started towards the end of 2023 is expected to extend in first half of 2024 as well.

Companies are building strategic partnerships, innovating on products and business models and even laying off large part of their workforce to reduce reliance on external capital. Some of these bets have started to pay off.

Public Markets

In December, Indian public listed education companies experienced a notable increase in the mean EV/EBITDA multiple from 13.4 to 16.6, and the median rose from 16.0 to 21.4 compared to November. M&A transactions, including Arco-Achieve and Wiley-Academic Partnership, were finalized during this period. Companies are actively pursuing sustainable profitability through strategic partnerships with international institutions, innovative product introductions, and unique business models. Examples include Navneet’s loyalty program. Some companies, like 2U, underwent organizational restructuring, while others, such as CL Educate, are planning expansions beyond India.

B2C Companies

Rapid Round up

a) Chegg: Company has faced substantial challenges from AI-driven homework solutions, particularly ChatGPT, impacting its subscription model with a nearly 60% stock decline in the past year. CEO Dan Rosensweig acknowledged these issues and revealed a strategic shift towards Chegg’s AI chatbot, CheggMate. Despite a 48% stock drop post-earnings report, Chegg remains committed to AI, actively developing CheggMate and integrating generative-AI features. The company, while addressing the evolving challenges from AI competitors, maintains a steadfast vision for AI to revolutionize education.

b) 2U: Company has announced the appointment of Andrew Hermalyn as President of the Degree Program Segment and Aaron McCullough as President of the Alternative Credential Segment. They will oversee their respective segments and report to CEO Paul Lalljie. This move is part of 2U’s organizational streamlining to enhance its business model and profitability. Hermalyn, with 15 years at 2U, brings extensive experience, while McCullough, who joined in July 2023, is excited about contributing to the company’s renewed focus on growth and cash flow.

c) Arco: Company has successfully completed its merger with Achieve Merger Sub, a subsidiary of Achieve Holdings, making Arco a wholly-owned subsidiary of Achieve. The merger, in accordance with the previously announced Merger Agreement dated August 10, 2023, resulted in the cancellation of each Class A common share in exchange for US$14.00 in cash. The Company’s shareholders approved the agreement on December 4, 2023. Following the merger, Arco ceased to be a publicly traded company, and trading of its shares on Nasdaq was suspended as of December 7, 2023.

2. B2B Companies

Rapid Round up

a) Pearson: Company’s largest investor, Cevian Capital AB, suggests the education firm should move its listing to the United States to enhance shareholder value. Activist investor Cevian believes Pearson, primarily a U.S. company with significant sales and executives there, should relocate for strategic reasons. If Pearson, a FTSE 100 constituent, currently listed in London, follows through, it would join the trend of companies leaving London, raising concerns about the city’s diminishing attractiveness to businesses.

b) Powerschool: Company has entered into an exclusive partnership with Bahwan CyberTek to expand the availability of its cloud-based education technology in Oman. The collaboration aims to introduce PowerSchool’s SIS, Schoology Learning, and Enrollment Express to educational institutions across Oman, supporting digital transformation in the region. The partnership also envisions establishing a K-12 Centre of Excellence in Oman to enhance youth skills, contribute to employment, and align with the country’s Vision 2040 goals. Bahwan CyberTek will be responsible for marketing, selling, and servicing PowerSchool’s learning management system and related services in Oman.

3. Indian Education Companies

Rapid Round up

a) Navneet: Company launched a loyalty program designed to strengthen relationships with students and elevate their educational journey. Navneet Study Perks is a program that encourages encourages repeat purchases and customer loyalty by enticing students with rewards such as Youva Hampers, Tabs, and Scholarships. The primary objectives of the program include influencing student behaviour to increase consumer spending, gathering valuable data and insights, facilitating cross-selling and upselling opportunities, enhancing student engagement, and enabling the tracking of consumer behaviour for strategic improvements. The program also establishes a feedback loop, allowing company to adapt and tailor products based on customer input.

b) Veranda Learning: Company has partnered with the Illinois Institute of Technology (Illinois Tech) to enhance educational offerings in information technology and K–12 dual credit programs. Veranda Learning Solutions, a publicly traded edtech company, offers upskilling programs through subsidiaries like Veranda RACE and Edureka. The collaboration aims to provide students with advanced courses, facilitating a seamless transition to higher education. Edureka, a Veranda subsidiary, will offer technology courses, while Veranda K–12 will administer the dual credit program.

c) CL Educate: Company has outlined ambitious expansion plans, aiming to increase its presence in India from around 160 centers to 500 centers in the next two to three years. This expansion includes the addition of 12 new study abroad centers across India, with a mix of company-owned and franchise-operated centers. The locations include Mumbai, Delhi-NCR, Bangalore, Kolkata, Amritsar, Chandigarh, Panipat, and Mysore.

Moreover, Company is eyeing global expansion, targeting countries such as Bangladesh, Nepal, Sri Lanka, and various markets in South Asia and West Asia. The company sees cultural and economic similarities between India and these regions, making them immediate targets for expansion. Additionally, CL Educate is venturing into Africa, with plans to set up a foundation in the next three years, starting with Mauritius before expanding to South Africa, Nigeria, Uganda, and Zambia. The expansion strategy involves parallel efforts in Bangladesh, Nepal, and Sri Lanka, with a focus on specific areas and countries.

Private Markets

Funding activity in private education companies stayed minimal in December while there was no M&A activity . As companies are focusing on sustainable profitability and having a robust business model, the reliance on on external source of capital has decreased, some companies are optimizing costs by laying off excess workforce.

Rapid Round up

a) TestnTrack: Jaipur-based AI-powered startup TestnTrack secured an undisclosed amount in its pre-seed funding round from EvolveX, a global startup accelerator by We Founder Circle (WFC). The funds raised will support TestnTrack’s expansion plans, focusing on cities like Kota, Ahmedabad, Delhi, Mumbai, Pune, Lucknow and Indore, with a target of evaluating 50,000 students in the coming year.

b) Beyond Odds: Former Unacademy COO, Vivek Sinha, secured $11 million in funding for his new edtech startup, with participation from Lightspeed Venture Partners, Matrix Partners, and angel investors like Oyo CEO Ritesh Agarwal and Unacademy CEO Gaurav Munjal. The startup, focusing on upskilling in the healthcare sector, operates under the name Beyond Odds, registered in September. While details are pending as the funding round continues, Sinha is actively seeking additional angel investors.