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Education Markets and Deals Roundup — 8th Edition

Education Markets and Deals Roundup — 8th Edition

While the funding for education companies in private markets was stark in 2023, the past couple of months have shown promising signs as funding activity has picked up pace. Though still a long way from the peak of 2021, we can certainly see signs of recovery. February was marked with a variety of unique transactions in the private space including entry of a big player like HCL Tech in Indian education market and leading venture firm Blume Ventures actively investing in education companies to Accenture acquiring Udacity and Actis exiting SIS group.

Additionally, the corrective measures taken by companies including restructuring their operations, leveraging generative AI and tweaking their business models has started to bear fruits as majority of the listed education companies posted quarterly financial results exceeding market expectations.

I. Public Markets

As companies posted their earnings for Quarter ended December 2023, and for the calendar year 2023, majority of the listed education companies have exceeded the market expectations. The corrective measures such as restructuring , reviewing business models, integrating AI which were highlighted in 2023 are now starting to bear fruits for these companies, which can be seen in their strong financial performances
The public markets have now been stabilized with the EV/EBITDA ratio floating between 16.5 to 17.5 for Indian companies, 12–13 for gloabal B2B companies and 9.5 to 10.5 for global B2C companies in the last few months

B2C Companies

Rapid Round Up

a. Duolingo:
Company’s stock surged over 20% after reporting strong fourth-quarter earnings, including earnings of 26 cents per share and revenue growth of 45% to $151 million. CEO Luis von Ahn praised the company’s exceptional performance in 2023, with record bookings, revenue, and profitability. Duolingo also saw significant increases in daily and monthly active users, up by 65% and 46% respectively, along with a 57% rise in paid subscribers. For 2024, Duolingo projects revenue between $717.5 million and $729.5 million, slightly below Wall Street’s forecast of $723.4 million.

b. IDP Education:
Company reported robust first-half(Jul-Dec) FY24 results, surpassing expectations and potentially squeezing short sellers. With record revenue of $579 million (up 15%), adjusted EBIT of $159 million (up 25%), and adjusted net profit after tax of $107 million (up 23%), the company outperformed Goldman Sachs estimates and consensus expectations by 3%, 11%, and 13%, respectively. Key highlights include a 33% increase in student placement volumes, though English language testing volumes declined by 12%, primarily due to weaker conditions in India. The company attributes industry challenges to declining sentiment towards Canada, UK visa rule changes, and increased visa rejection rates for Australia.

c. Laureate Education:
Company posted strong financial results for Q4 and full-year 2023, with revenue growing by 18% in Q4 and 19% for the full year, reaching $409.4 million and $1,484.3 million respectively. Operating income for Q4 surged to $110.0 million, with full-year operating income hitting $338.8 million. Adjusted EBITDA also saw substantial growth, reaching $131.3 million in Q4 and $418.6 million for the full year. LAUR announced a new $100 million stock buyback authorization. Despite challenges in the Peruvian market, the company remains optimistic for 2024, projecting growth in enrollments and revenues, with Adjusted EBITDA expected to rise. Key metrics include a 10% increase in new enrollments and a total enrollment growth of 6%. The company’s strong balance sheet and liquidity position it well for future growth and value creation

d. Perdoceo Education:
The company reported a 2.1% increase in revenue to $710.0 million for the full year, driven by growth at CTU. Operating income also saw a notable uptick, rising by 16.1% to $150.4 million, while adjusted operating income climbed 6.7% to $174.9 million. However, total student enrollments at December 31, 2023, showcased a mixed picture, with a 3.2% increase at CTU but a significant 39.3% decrease at AIUS. Conversely, the fourth quarter of 2023 faced challenges, marked by a 16.0% revenue decline to $147.9 million, mainly attributed to enrollment reduction at AIUS. Operating income also dropped by 29.7% to $15.9 million, with adjusted operating income falling 40.2% to $19.4 million. Additionally, the board declared a dividend of $0.11 per share for the fourth quarter, payable on March 15, 2024, and approved a new stock repurchase program authorizing the repurchase of up to $50.0 million of outstanding common stock.

2. B2B Companies

Rapid Round Up

a. Pearson:
Compny’s CEO, highlighted growth in the assessment and qualifications department, citing AI as a potential driver. Despite a drop in overall sales to £3.67 billion from £3.84 billion in 2022, underlying sales increased by 5%, driven by a 7% growth in assessments and qualifications. However, Pearson’s virtual learning arm experienced a 20% sales decline due to a lost contract. Pearson remains optimistic about technology advancements and company’s strong capabilities in assessment, content, and services. He emphasized strong operational and financial performance in 2023, fueled by cash generation supporting future growth and shareholder value.

b. Powerschool:
Company’s shares surged nearly 10% after reporting better-than-expected earnings for the fourth quarter. Revenue of $146.1 million exceeded analysts’ expectations of $141.19 million, with earnings per share at 14 cents compared to the estimated 4 cents. Full-year revenue grew to $558.6 million, up 28.4% year-over-year, driven by strong demand and significant cross-sell transactions. CEO Hardeep Gulati attributed the record results to PowerSchool’s role as a trusted partner in education’s digital transformation. The company forecasts first-quarter revenue between $145 million and $148 million, and for 2022, revenues are estimated to be between $620 million and $626 million.

c. Instructure Holdings:
Company reported strong financial results for Q4 and full-year 2023, with Q4 revenue up by 8.5% year-over-year to $135.4 million and full-year revenue increasing by 11.6% to $530.2 million. The acquisition of Parchment and a strong adjusted EBITDA margin of 41.7% in Q4 were key achievements. Instructure’s outlook for 2024 focuses on international market expansion, AI innovation, and catering to nontraditional learners. Q1 2024 revenue is forecasted between $153.8 million and $154.8 million, with full-year 2024 revenue projected between $655 million and $665 million. The company plans to leverage its go-to-market function and AI innovation for student success, aiming to displace legacy technology in international markets. Despite a slowdown in the higher education sector, strong pipeline activity and market share gains are anticipated. Margin expansion opportunities and future plans for expansion into lower-cost geographies were highlighted.

3. Indian Education Companies

Rapid Round Up

a. Navneet Education:
Company’s earnings per share estimates for FY25E/FY26E have been reduced by 14%/12% due to challenges in the publishing business. The company reported weaker-than-expected performance with an EBITDA margin of 1.6% (PLe 9.1%) as publishing top-line declined by 7.2% YoY, primarily due to higher sales returns amid the prevalence of second-hand books. Anticipated higher sales returns may lead to increased provision buffers. Moreover, Navneet Education is still awaiting curriculum change announcements for FY25E, indicating continued pressure on volumes. Consequently, the publishing business is expected to grow at a compound annual growth rate of 7% over FY23-FY26E. Despite these challenges, a ‘Buy’ rating is retained with a revised target price of Rs 182 (previously Rs 206), adjusting the core business target multiple to 11 times (previously 12 times) due to delays in realizing NCF benefits.

b. CL Educate:
Company increased its stake in 361 Degree Minds (361DM) to 38.92% via a Rights Issue. S. Sadagopan, founding director of IIIT Bangalore, joins 361DM as non-executive chairman. 361DM, an aggregator of online degrees, partners with universities like Jain, SRM, and Manipal. With India’s growing learner base, 361DM sees significant potential. CL Educate’s involvement and Sadagopan’s guidance aim to elevate 361DM’s growth. Piyush Sharma, a CL Educate board member and professor at Curtin University, also joins 361DM’s board. This partnership aligns with CL Educate’s strategy and enhances 361DM’s trajectory.

II. Private Markets

We saw an significant movement in equity financing in private markets for Education companies, with more 6 deals being announced during the past month cumulatively worth more than $50 Million. These are promising signs of increasing confidence of investors in the education sector. With entry of a big player like HCL Group in Indian education market and leading venture firm Blume Ventures making multiple investments in education companies, we can expect the funding activity to gain some momentum in the coming months.

Rapid Round Up:

a) Adventum Student Living: owner of study abroad platforms UniScholars, UniCreds, and UniAcco, has secured $3 million (INR 24.9 Cr) from Brand Capital, the strategic investment arm of Times of India. ASL’s founder expressed excitement about leveraging Brand Capital’s resources to enhance business offerings and scale alongside industry leaders. The partnership aims to increase accessibility to international study opportunities, reinforcing their commitment to academic success. Founded in 2019, ASL provides student accommodation, education loans, and scholarship programs through its platforms.

b) Amber: a student accommodation platform has raised $21 million in its first round of institutional funding, led by Mumbai-based private equity firm Gaja Capital. The round comprises $18.5 million in fresh equity and the remaining in venture debt from Lighthouse Canton and Stride Ventures. The funds will be used for global expansion and to enhance its offerings for property managers and students. The company plans to grow its operations by enlisting more suppliers and property managers, while also focusing on scaling the demand from both international and domestic students. It will invest in innovation on the product development front.

c) Virohan: a healthcare edtech startup based in Gurugram, raised Rs 14.9 crore ($1.8 million) in an extended pre-Series B round led by Blume Ventures. Mitsui Sumitomo Insurance Venture Capital and Suneight were among the investors. The funding valued Virohan at around Rs 425 crore ($51 million). This marked a significant jump of 1.8 times from its previous valuation.

d) Interview Kickstart: has raised $10 million in its first funding round from Blume Ventures. The company offers career-advancing skills training for tech professionals, focusing on helping engineers transition to advanced roles. The startup plans to aggressively invest in its AI offerings and expand into new domains like product management and design. Blume Ventures sees this investment as a testament to Interview Kickstart’s impact on professionals in the tech industry.

e) Education Initiative: a B2B education software firm, received a $20Mn investment from HCL Group for a minority stake. Founded in 2001, Ei offers research-backed assessments (Ei Asset and Ei Cares) and personalized adaptive learning solutions (Ei Mindspark) to improve learning outcomes in India, the UAE, South Africa, and Singapore. With over a million paid users, Ei focuses on empowering teachers and enhancing learning for all students, irrespective of their socioeconomic background. CEO Pranav Kothari expressed enthusiasm about the partnership with HCL Group, aligning with their vision of leveraging pedagogy and technology for global educational improvement. Shikhar Malhotra, Director of HCL Group, emphasized Ei’s technological prowess, impactful initiatives, and sustainable growth.

f) MyCaptain: an edtech startup, has raised INR 14 Cr (approximately $1.6 Mn) from investors including Inflection Point Ventures, MyNavi, Piper Serica, Super Capital, and Ankur Capital. The funding will be used to expand into new cities, establish regional sales centers, and introduce additional courses. Founded in 2016, MyCaptain offers courses in various fields like content, design, visual arts, finance, and business to help individuals explore new career options and develop practical skills. The company aims to surpass 20,000 enrollments across its courses and achieve a revenue of INR 31 Cr in FY24. MyCaptain’s focus is on providing career discovery and job-focused bootcamps to prepare students for the evolving professional landscape.

g) Amelio: Kido International, a UK-based early childhood education chain, has acquired Amelio Early Education, a leading preschool and daycare operator in India. This strategic move establishes Kido as one of India’s premier non-franchised players in early childhood education, offering its award-winning pedagogy and world-class standards. With Amelio’s established network of 30 centers across Chennai, Bangalore, and Hyderabad, Kido aims to provide its premium education and care services to a wider audience in India. The acquisition follows a USD 7.5 million fund raise led by Tanas Capital, enabling Kido’s organic and inorganic growth plans in India. Kido’s commitment to delivering excellent childcare and education, aligned with Amelio’s mission, promises a seamless integration of Kido’s global curriculum with Amelio’s network. With India’s focus on quality early childhood education per the National Education Policy 2020, Kido is poised to become a leading player in the sector.

III. Featured Transactions

Accenture to Acquire EdTech Leader Udacity to Accelerate Capabilities of Accenture LearnVantage
Julie Sweet, CEO of Accenture since 2019, initiated a Technology Quotient program to ensure all employees possess fundamental knowledge of key technologies. Recognizing the significance of technology in business transformation, Accenture launched Accenture LearnVantage, an AI-powered learning platform acquired from Udacity. The platform aims to help clients reskill and upskill their workforce in technology, data, and AI. With a $3 billion investment over three years in data and AI practice and an additional $1 billion for LearnVantage expansion, Accenture is positioning itself to address the growing demand for training services amid worsening IT skills shortages. Despite concerns about AI’s impact on jobs, Sweet emphasizes the importance of upskilling and reskilling to seize growth opportunities. She acknowledges the need for continuous learning and is personally engaged in deepening her understanding of emerging technologies across various industries.Actis sells majority stake in Indonesian education player SIS Group to local PE firm
Private equity firm Actis has sold its 75% stake in the SIS Group, a Jakarta-based operator of private schools in several countries, to Adivira Capital, an Indonesian firm specializing in mid-market private equity. The deal is estimated to be around $30 million. Adivira Capital focuses on consumer, healthcare, financial services, and education sectors. SIS Group was previously under Actis’s portfolio after Actis acquired it from funds managed by the collapsed Abraaj Group in 2019. Adivira Capital’s acquisition includes Southgate Ventures, which operates schools under the SIS Group brand. The acquisition aligns with Adivira’s strategy to tap into the growing education market, particularly in Indonesia.