Will Online Learning Become the New Norm?

Over the past few weeks, schools and universities across the nation have shut their doors and have transitioned to online/virtual classrooms. Students and educators – many with no prior online learning experience – are suddenly forced to implement and adapt technology into their regular teaching and learning routines. Experts are questioning if the end to the COVID-19 pandemic will also signal a return to the traditional classroom, or has the meaning of “classroom” been permanently altered? The traditional definition of “classroom” – a room where learning takes place – is no longer simply associated with desks, chairs, a white board, a teacher, and pupils. Technology platforms such as Zoom have allowed a bedroom, a couch, a backyard, or a dining room table to become students’ new place of learning. Although teachers and students should certainly be applauded for the rapid transition to remote learning, the crucial question is whether the online learning model is a sustainable and viable replacement for the traditional schooling system?

In a recent study, conducted by Eduventures in December 2019, 61% of college-bound high school students with online learning experience said they prefer to take all college courses on campus. While 22% of surveyors with online learning experience said they prefer to take some online college classes, less than 1% of surveyors said they prefer a fully online experience. (1) The data seems to point to the fact that although remote learning is deemed as an invaluable system to mitigate the global pandemic’s disruption on academic progress, it does not seem to be a feasible replacement of traditional education, which also tends to foster personal development and interpersonal skills. However, as students and teachers become more comfortable with the digital format, it is likely to become an important supplement to traditional learning across all educational institutions, allowing for greater flexibility in addressing students’ academic, financial, health, and personal needs. For example, middle schools and high schools could start offering more online courses to augment learning for advanced students as well as provide more tools and tutorials for assisting struggling students. Colleges can use online classes to expand enrollments for essential prerequisite classes, thereby increasing the percentage of students that graduate on time while alleviating some of the financial burden of students.

Further, the inequalities in America’s education system have been reemphasized by the COVID-19 pandemic as schools and universities scramble to provide internet access and computer devices for all of its students. The pandemic will help accelerate the implementation of infrastructure for distance learning across the industry. It will provide a strong foundation for education technology companies to build on and will allow them to integrate remote learning as a supplemental tool to traditional classroom schooling.

(1) https://encoura.org/generation-distance-will-traditional-students-embrace-online-learning/

Buyside Bulletin: Don’t Shelve Your Add-on Program in a Downturn

In the current economic environment, private equity-owned companies are scrambling to adjust to the current realities brought on by the COVID-19 pandemic and the health-related mitigation efforts that are wreaking havoc on the economy.  As we eventually move out of the current chaotic environment, management teams and their private equity partners would be well served to keep their add-on programs active as the economy recovers.

A recent report from Boston Consulting Group (“BCG”) states their research shows “downturns can be excellent times for deal making.”  BCG reviewed deals over the last 40 years and found that deals completed in a weak economic environment created more value for the acquirer than deals made in a strong economic environment.  BCG’s research shows that buyers’ relative total shareholder return (“RTSR”) after one year for deals done in a weak economy is nearly 7 percentage points higher than deals done in a good economy.  The differential increases to more than 9 percentage points after two years. (1)

A key factor contributing to the outperformance is management teams making bold decisions in a weak economic environment.  The data shows acquisitions outside of the buyer’s core industry segment outperformed acquisitions within the buyer’s core segments; however, both created value with core segment acquisitions showing 4.6% RTSR after one year and non-core segment acquisitions showing 8.5% RTST after one year.

MHT believes having a well-thought-out M&A strategy and a well-vetted potential target list is wise in any economic environment, but it is especially important right now as the current economy may present unique opportunities for creating significant long-term value through strategic acquisitions.  We have seen numerous clients perform very well with their platforms when they have the foresight to invest for future growth, especially when acquiring assets that might be overlooked while others are paralyzed by uncertainty.  We also have observed clients that have leveraged difficult economic situations to expand beyond current core offerings into new products, markets and channels.

Experience Matters

Another key finding of BCG’s report is experience matters.  BCG divided buyers into two categories: “occasional buyers” and “experienced buyers”.  The occasional buyers completed one to three transactions in their data sample while the experienced buyers completed four or more transactions.

When BCG segregated the data based on buyer experience, they found that experienced buyers outperformed in any environment. Experienced buyers achieved a two-year RTSR of 1.1% during strong economic times and a two-year RTSR of 7.3% during weak economic times.  This compared very favorable to the occasional buyer, which had a two-year RTSR of -13.8% in strong economies and a two-year RTSR of 1.4% in weak economies.  This data shows that weak economic times can provide significant value creation opportunities, even for the occasional buyer.  Regarding the occasional buyer, BCG concluded “these analyses also imply that, in general, occasional buyers should not shy away from doing M&A deals, especially in downturns.  Indeed, they should regard a weak economy as an opportunity to gain experience, because depressed asset prices (as reflected by lower deal multiples observed during the Great Recession) increase the margin for error in deal making.” (1)

It may take several months for the current volatility to subside and a reasonable environment for deal making to return.  As we experienced first-hand in 2009 and 2010, MHT believes savvy acquirers can refine their M&A strategies and develop well-vetted target lists in the near term, so they are prepared to launch (or relaunch) their acquisition programs when the market environment allows and ahead of improving valuations.   Our acquisition team helped several of our private equity clients execute transformative strategies during the last downturn.

MHT Partners is a leading national middle market investment bank with a high-performing team uniquely qualified to serve dynamic, growth-oriented companies.  We leverage our transaction execution and strategic advisory skills to develop and execute the value-building acquisition strategy that’s optimal for each client.  If you are an occasional buyer, we can add valuable experience and resources to your team.  If you are an experienced buyer, we can add additional firepower and capability to your effort to help you create and execute value-creating, add-on deal opportunities during the economic downturn.

To learn more about our Acquisition Advisory practice, please contact Kevin Jolley (kjolley@mhtpartners.com) or Shawn D. Terry (sterry@mhtpartners.com).

(1) The 2019 M&A Report, Downturns Are A Better Time for Deal Hunting, The Boston Consulting Group

COVID and Food Delivery: Paradigm Shifts in Foodservice in the Midst of the Pandemic

It is evident that the COVID-19 pandemic is wreaking havoc on the foodservice economy, with multitudes of local restaurants struggling as diners are staying home, forcing restaurants to limit service to takeout and delivery options. As COVID-19 started to spread globally, as of early March, the OpenTable reservation system reported that year-over-year seated diners were down by 20%, and reservations obviously ground to a halt by the end of the month. However, delivery services such as DoorDash, Postmates, and Grubhub, which have already been disrupting the way American diners approach restaurant dining over the last few years, are now providing a critical lifeline for individuals that don’t want to venture from their homes to go grocery shopping or pick up food and for restaurants not equipped to offer their own delivery. In fact, these services are now offering “no contact” delivery options, where meals are left for customers on the doorstep without any physical contact with the driver. While data is evolving realtime in the fluid environment surrounding the COVID pandemic, U.S. engagement in food and drink apps, including restaurant and grocery delivery, was up 15% in early March as cases began to rise, and this will likely increase as data from subsequent weeks will capture more of the restrictions taking effect and driving demand for delivery.(1)

Will this uptick in food delivery last, representing a paradigm shift in the way consumers engage with restaurants? Right now, delivery services offer a way for local restaurants to remain in business and reach their loyal consumers, and it is clear that these restaurant delivery business models are well positioned in the current environment. As consumers who previously did not use these services embrace them during the pandemic, and as diners potentially eschew eating out for the foreseeable future to avoid crowds, it is possible that these services will gain an increasing share of the American dining dollar permanently.

Additionally, restaurants are getting creative in engaging with consumers during the pandemic and shifting their menu options as well to cater to the takeout and delivery market. In some states, such as California, Colorado, and Texas, among others, laws around selling alcohol “to go” and its delivery are being relaxed, affording opportunities for restaurants to capitalize on higher margin alcohol sales during this unique time. Given the historical complexity of state-by-state laws around alcohol sales, it will be interesting to see if these changes are adopted for the long term, potentially opening the possibility for at-home delivery of cocktails permanently.

Beyond cocktails-to-go, some restaurants are shifting menus to “family-style” meals for takeout or pickup. These changes in menu structure are in part to target families quarantined together (one ancillary benefit to shelter-in-place restrictions is perhaps the resurgence of the shared family dinner, without the pressure of school and work commitments that characterize the typical American week), as well as to streamline kitchen operations and required ingredients in these uncertain times. As the restrictions are eventually lifted, it will be interesting to see how many restaurants continue to offer these family-style meals as standard options.

As consumer investment bankers, we are keenly following the evolution of the food-and-beverage and restaurant-and-retail landscapes in the age of COVID-19, and specifically which changes may be here to stay as a result of the global pandemic. For further discussion around the trajectory of consumer M&A and the current market environment, please feel free to reach out to us (Craig Lawson, clawson@mhtpartners.com, Patrick Crocker, pcrocker@mhtpartners.com), Gavin Daniels, gdaniels@mhtpartners.com, Tara Smith, tsmith@mhtpartners.com, or Tom Gotsch, tgotsch@mhtpartners.com).

[1] https://www.appannie.com/en/insights/market-data/coronavirus-impact-mobile-economy/