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Education Markets and Deals Roundup — 7th Edition

Education Markets and Deals Roundup — 7th Edition

Amidst the funding crunch in private markets an AI first edtech, Convegenius secured funding of $7Mn from prominent investors highlighting the growing confidence among investors towards edtech especially AI focused companies. Byjus launched its rights issue to raise $200 million from existing investors at $230-$250 Mn. valuation in a cram down round.

Companies like Veranda Learning, Powerschool and Lincoln Education continued the momentum in M&A activity with some marquee acquisition in the education space while Duolingo laid off 10% of its contract translators as part of its strategic shift to Generative AI.

Public Markets

In January, listed education companies released their earnings for the quarter ended December 2023, which were more or less in line with analyst prediction, while few managed to marginally surpass the market forecast as well; leading to share prices remaining stable. We continue to witness the significant action in M&A with companies looking to acquire businesses for better integration, to increase their offerings and diversifying their portfolio.
The mean EV/EBITDA multiple of listed Indian education companies has persistently increased over the last couple of months, rising from 16.6 to 17.5 in January.

B2C Companies

Rapid Round up

a) Duolingo: Company laid off 10% of its contract translators as the company increasingly relies on generative AI for content development. The move is part of a strategic shift, with a company spokesperson citing reduced need for certain tasks due to AI capabilities. Duolingo emphasizes that AI is used across various functions, but human employees, both contract and staff, continue to validate and refine AI-generated content for accuracy. The company actively seeks alternative roles for affected contractors and plans to fill two new AI positions to enhance app personalization and refine speech-related functionalities. However, company insists that AI is intended to streamline processes and enhance tasks rather than replace human jobs outright.

b) New Oriental Education and Technology Group: Company experienced an impressive 11% rally after its fiscal second-quarter earnings report, showcasing a robust 190% surge in adjusted earnings per share to 29 cents, and a 36% increase in revenue, reaching $870 million. These figures exceeded Wall Street estimates of 26 cents EPS and $814 million in sales. Despite the seasonally slow quarter, company executives expressed satisfaction with the results. EDU anticipates a substantial third-quarter revenue growth, projecting a range of $1.07 billion to $1.09 billion, well above the $942 million estimated by Wall Street analysts. The stock rose to 80.01, surpassing an early buy point of 78.19, after achieving a remarkable 120% gain in 2023.

c) Stride: Company reported a robust Q2 FY2024, with a 10.1% revenue increase to $504.9 million and operational income surging by 23.8% to $84.3 million. Net income rose by 31.8% to $66.8 million, and diluted net income per share increased from $1.19 to $1.54. Adjusted EBITDA grew by 17.8% to $118.3 million, and enrollments in General Education and Career Learning saw an 8.8% uptick. Despite challenges in the competitive online education market and potential risks, Stride Inc raised its full-year guidance, projecting revenue between $1.99 billion and $2.04 billion, and adjusted operating income in the range of $265 million to $285 million. The company’s strong financial performance reflects effective cost management, operational efficiency, and sustained growth in student enrollments, positioning Stride Inc for long-term success in the dynamic educational landscape.

d) Coursera: Company reported strong financial results for Q4 2023 and the full year, with total revenue reaching $168.9 million and $635.8 million, respectively. The company showcased a 19% YoY growth in Q4 and 21% for the full year. Notably, it achieved positive Adjusted EBITDA for the first time in Q4, marking a significant milestone. The platform added 6 million new registered learners, bringing the total to 142 million. Coursera emphasized its commitment to generative AI and strategic partnerships with industry leaders like Microsoft, Google Cloud, and AWS. The company expanded its enterprise relationships and introduced new courses, degrees, and translation initiatives to enhance accessibility. Coursera anticipates a 550 basis point improvement in Adjusted EBITDA Margin in 2024.

e) TAL Education Group: Company posted impressive Q3 FY2024 results, reporting a 60.5% YoY surge in net revenues to $373.5 million, driven by the success of its enrichment learning program. Gross profit reached $200.2 million, but the company reported an operational loss of $32.2 million. Despite this, TAL maintains a robust cash position of $2,193.4 million. Strategic plans include investments in learning services, expanding offline centers, and integrating AI into learning devices. Also, it was reported that the company aims to leverage AI for learning device enhancement, expand overseas, and innovate online enrichment experiences.

2. B2B Companies

Rapid Round up

a) PowerSchool: Company has acquired Allovue, a key player in K-12 financial planning software. This expands PowerSchool’s data and analytics tools for schools and districts. The addition of Allovue’s solutions provides comprehensive budgeting tools, real-time access, collaboration features, and analytics dashboards. The move supports education leaders in navigating post-stimulus finance challenges. PowerSchool’s CEO emphasizes commitment to empowering leaders in K-12 finance. Allovue customers will now be supported by PowerSchool, gaining access to ongoing platform enhancements and synergies with PowerSchool’s existing products.

b) Lincoln Education Services: Company has entered a sale-leaseback agreement for its recently purchased 90,000 square foot facility in Levittown, PA. The property will become the new home for Lincoln Tech’s Philadelphia campus, relocating from Torresdale Avenue after over 60 years. The sale amounts to approximately $11 million, with a simultaneous twenty-year triple-net leaseback. Lincoln plans to invest around $15 million in the campus buildout, offering expanded career training programs in Automotive, Welding, HVAC, and Electrical industries. The new campus is set to open in the second half of 2025, accommodating more students and supporting employer demand in various industries.

3. Indian Education Companies

Rapid Round up

a) Aptech: Company has been accused of leaking question papers in the General Departmental Competitive Examination (GDCE) conducted by the Railway Recruitment Centre, Mumbai. The CBI has registered a case, stating that Aptech, appointed as the Exam Conducting Agency, supplied candidates with question papers and answers before the January 3, 2021, exam in exchange for payments. Over 8,600 candidates were affected, with allegations of paper leaks via WhatsApp and physical distribution. The CBI conducted searches in multiple locations, recovering digital evidence and incriminating documents. Fifteen individuals, including 10 Railways officials and one CRPF head constable, have been named in connection with the case.

b) Veranda Learning: Company is acquiring a 50% stake in Tapasya Educational Institutions for Rs 120 crore through its subsidiary Veranda XL Learning Solutions. Tapasya operates across 13 locations in Telangana and Karnataka, serving 19 Inter/PU Colleges and 10 degree colleges with over 13,000 students. In the fiscal year 2024, TEIPL is expected to generate a revenue of Rs 65 crore. The acquisition aims to strengthen Veranda’s position in Commerce Higher Education and foster a symbiotic relationship, leveraging each other’s expertise. Suresh Kalpathi, Executive Director of Veranda Learning, sees it as aligning with their commitment to high-quality education, aiming to reach 1 million students in FY24. Muppala Sreedhar, Founder of Tapasya Institutions, anticipates a powerful synergy benefiting students and stakeholders.

Private Market

An AI- first edtech, Convegenius close its Series A funding round securing $7mn . Byju’s launched its rights issue to raise $200 million from existing investors at $230-$250 Mn. valuation in a cram down round.

Rapid Round up

a) Maidaan: Company has secured an undisclosed amount in a pre-seed round led by investors such as Inflection Point Ventures and EvolveX, with participation from We Founder Circle. The funding will primarily focus on advancing product development, enhancing content, games, and tournament formats. Maidaan distinguishes itself through live, bite-sized olympiads and tournaments, aiming to create an educational community beyond traditional school boundaries.

b) Convegenius: Company has secured $7 million in a growth financing round led by the Michael & Susan Dell Foundation, with participation from existing investors Bace Capital, Heritas Capital, and Gray Matters Capital. The funds will support the company in expanding its Indian technology globally. Established in 2013, ConveGenius operates three verticals: SwiftChat, a conversational AI bot store; Swift School, a personalized adaptive learning platform; and Swift Insights, a large-scale assessments and data intelligence platform. The company’s solutions have widespread adoption in schools across India and globally. The aim is to drive improved learning outcomes on a global scale.