2008 Key Highlights in the PreK-12 Sector
- The largest transaction in 2008 was Bain Capital’s acquisition of Bright Horizons Family
Solutions for $1.33 billion. Moreover, the PreK/Early Childhood Education segment was
one of the most active ones in 2008, with 15 announced transactions.
- The K-12 Schools segments – which include Pre-K/early childhood businesses, private schools,
and special needs/alternative schools – experienced the greatest volume of M&A activity
in 2008. Nobel Learning Communities and
American Education Group were particularly
acquisitive, with each company announcing
multiple transactions.
2008 vs. 2007 Key Trends in PreK-12
- Total transaction volume increased slightly
in 2008, from 79 deals in 2007 to 80 in
2008.
- At the same time, total transaction value
decreased 57% in 2008, from $9.9 billion in
value in 2007 to $4.3 billion in 2008.
- Median transaction value for K-12 deals was
$13 million in 2008, an 11% decline from
the previous year’s figure.
PreK-12 Market Forecast: Leading Investment Themes
While the broader economy remains sour, our
engagements with leading strategic investors
and private equity firms indicate that interest
remains extremely strong for education
deals in 2009. Moreover, given the median
size of K-12 deals over the past several years,
tight credit markets should have a limited
impact on most prospective deals. We have
highlighted below three notable investment
themes for 2009.
Tighter integration occurs between administrative
and academic systems — The days
of K-12 data siloes are coming to an end, driven
predominantly by the reporting requirements
of NCLB and the recognized impact of well-presented data’s impact on informing student instruction. Moreover, the American
Recovery and Reinvestment Act’s allocation of $250 million to support implementation
of statewide longitudinal data systems investment across the next two years will create
a further tailwind for this integration. SchoolNet’s acquisition of CampusWare and
SunGard Public Sector’s acquisition of Performance Pathways in the first quarter of 2009
confirm a trend our team has been actively tracking.
Response to intervention (RtI) moves into the mainstream — RtI is a systemic approach
for helping struggling learners in the general population before they fail and face a special
education referral. Combining elements of targeted intervention, formative assessment,
individual learning plans and case management, and professional development,
numerous companies are bringing to bear expertise in this emerging area. Many districts
will seek strategies for applying their share of the $11.3 billion in additional IDEA funding
to launching and/or extending RtI initiatives.
Growth in K-12 Online Services Firms Serving Districts and Schools — By the end of
2008, 44 states were directly offering some form of online learning options for students. In
Florida, legislation was recently passed requiring all 67 counties to set up virtual learning
opportunities for elementary and middle school students by August 2009. These–and other–
initiatives are being met by a growing number of businesses providing online instructional
programs, technology platforms and related services, and academic support services.
Educational Options announced acquisition of Siboney Learning in the first quarter of
2009 represents one of the many deals we expect to see in this space in the coming
year.
The PreK-12 markets have also witnessed a notable re-entry and expanding group of
strategic buyers, buoyed by tight credit markets, and an increasing tendency of active
private equity firms to over-equitize transactions and decrease their reliance on high cost
of capital leveraging tools. In addition, some private equity buyers are taking advantage
of captive debt funds in order to self-finance and gap-fill their investment models to
complete transactions.
In addition to the themes noted, Berkery Noyes’ education practice is actively tracking
trends and opportunities across 15 specific market segments, and related sub-segments
in our PreK-12 market taxonomy.