Companies like Teach Now and 2U are trailblazers in the realm of online teacher certification and preparation. Each year, these types of virtual education companies are becoming increasingly valuable to private equity companies.


Michael Wursthorn
January 18, 2013

Private equity is keeping it smart.

The buyout industry accounted for 30% of education merger and acquisition volume, as well as 63% of deal value last year, compared to 25% of volume and 51% of value in 2011, according to a report on the space by midmarket investment bank Berkery Noyes .

Leading the way for the private equity industry was Providence Equity Partners , which completed three transactions last year and was also behind the $1.64 billion acquisition of education software company Blackboard Inc. in 2011.

Private equity bucked a wider trend where M&A deal volume overall was relatively flat from year to year, while deal value fell 44% to $6.66 billion in 2012 from $11.93 billion in 2011, the report said.

“Strategics were flat, while private equity [firms] are becoming more active in the industry,” said John Shea, a managing partner of Berkery Noyes . “A lot of it has to do with where the industry itself is at the time.”

Mr. Shea added that the for-profit education space has been relatively dead at the moment due to regulatory concerns, forcing prospective buyers to wait for the dust to settle. Meanwhile, new technologies for the higher education and kindergarten through 12th-grade spaces continue to be disruptive, providing some opportunities for investment.

Besides making up a good chunk of deal activity in the report, which included a range of subsectors, private equity also recorded the largest education transaction last year with Apollo Global Management ‘s acquisition of McGraw-Hill Education for $2.62 billion.

Data also showed that some valuations may be a bit cheaper than past historical multiples. For 2012, the median Ebitda multiple was 10.3 times, down from 12 times in 2011. However median revenue multiples stayed the same at 1.6 times.

Berkery Noyes noted that within education, the higher-education media and technology segment saw transaction volume jump 59% from 2011, adding that other subsectors should begin to benefit from the continued digital transformation going on throughout the industry.

Mr. Shea said areas within that segment, such as services providing new ways to perform teacher evaluations, will likely receive interest from potential buyers.

He added that the more traditional for-profit segment may also make some sort of return this year as the regulatory environment continues to settle.

In fact, long-time education investor Sterling Partners announced earlier this month that it acquired Spartan College of Aeronautics and Technology, an aviation maintenance school for training pilots, aviation technicians and nondestructive testing professionals.

That deal was one of several education investments announced so far this year.

Lynda.com Inc., an online learning company, raised $103 million from Accel Partner s and Spectrum Equity, with participation from Meritech Capital Partners , while Leeds Equity Partners made a 66 million pound investment in INTO University Partnerships Ltd., a higher education partnering business.

Not to be outdone, Sterling had one other deal announcement this month: the acquisition of PlattForm Advertising , a marketing services provider to higher-education institutions.

“I think there will be some more opportunities to deploy capital this year,” Mr. Shea said. “The for-profit higher-ed space will come back [while] a lot of the technology areas will start to sort out so we can see what areas are getting traction.”