Private Equity Buyers Are Busy In Education Sector
Private equity investors have shown strong interest in education-focused companies in the last few years, and not just in edtech companies. Several things are responsible for this renewed interest.
- For the last 10 years, digital transformations in the classroom have caused the ed-tech market to soar and have led to an increased interest in all types of education-related investments.
- The U.S. faces a significant skill shortage across the board as our population gets older and as our society emphasizes professional careers over skilled-based careers. This had led to severe shortages in healthcare, the trades, and transportation.
- Approximately 30% of for-profit career colleges or vocational schools went out of business between 2008 and 2016, removing excess capacity from the post-secondary landscape, which led to a resurgence of interest from private equity groups.
- For the last four years, both the Republican administration and the Democratic Congress supported private education, which resulted in an upsurge in funding by federal, state, and local governments.
On top of that, the education industry is very fragmented, with many early childhood centers, career colleges, and training companies still owned by individuals, leaving private equity firms a lot of room for roll-ups to consolidate the industry and realize significant economies of scale.
In addition, the K-12 market has become more complicated, with new technologies rapidly changing the game. So having the right people in charge who know how to design and implement digital learning platforms is increasingly important, representing a unique opportunity for private equity and other tech-savvy investors. As a result, buyers and investors are spending more and more time developing world-class management teams to ensure their portfolio companies can provide teachers and students with the digital platforms and technical support they need to succeed.
For the past decade or so, buyers have been hesitant to invest in post-secondary education companies — ever since the Great Recession and implementing the Gainful Employment Rule during the Obama administration. However, things have turned around completely in the last four years for several reasons, including…
- Over 200 poorly run for-profit career colleges closed their doors before the 2017-18 academic year — continuing a long downward trend. But happily, at the well-run schools that survived, enrollment and revenue are rising again.
- The regulatory environment is more favorable because the Gainful Employment Rule has been greatly scaled back – even though it remains on the books for now.
- Most for-profit career schools are demonstrating better results regarding educational outcomes like gainful employment, making them more appealing to investors no matter the level of regulatory oversight.
- The education sector tends to do well in a recession. In general, post-secondary education does well when the economy slows down and unemployed people go back to schools, so education-related companies are a good hedge against recession in any investor’s portfolio.
- Valuations of early childhood centers, K-12 schools, and career colleges remain reasonable compared to other education sub-sectors like edtech.
- It isn’t just investors who’re interested in this space – lenders have returned as well. For example, Renovus Capital financed the Rasmussen acquisition with SunTrust, CIBC, and Bank of Ireland. NCK Capital financed its purchase of Tricoci in partnership with Greyrock Capital Group and NBH Bank.
That’s all good news for owners of education-related companies. Here are just a few of the deals in the education sector over the last few years —
- The Learning Experience, was purchased by Golden Gate Capital Partners Group-backed KinderCare Education, acquired Troy, Michigan-based Rainbow Child Care Center from Quad-C Management.
- Rasmussen College, a healthcare-focused career college system with 10,000 students across 22 campuses, was acquired by Renovus Capital Partners.
- The University of St. Augustine was acquired by Toronto’s Altas Partners in a deal worth $400 million.
- Allied Business Schools, which offers online real estate certification classes, was acquired by Colibri Group and Quad-C Management.
- Chicago-based Tricoci University of Beauty Culture was acquired by Dallas’s NCK Capital.
- Texas County Technical College in Houston, Missouri, was acquired by Arizona College.
- The National Business Institute of Florida was acquired by a private investor.
If you own an early childhood center, a Title IV career college, or a corporate training program and are interested in potentially selling, contact us at 224-513-5142 for a free, confidential, no-obligation discussion about the current market and your options.
About the author: Rich Jackim, the managing partner of Jackim Woods & Co, is an experienced M&A attorney, investment banker, business broker who has sold over 100 businesses. He is also an education sector entrepreneur who founded and sold a professional training company, so he understands the industry and the sales process from both an owner and a buyer’s perspective. If you are thinking of selling your early childhood center, K-12 school, career college, or training program, he would be happy to speak with you. His direct dial number is 224-513-5142, and his email is rjackim@jackimwoods.com.
