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January 30, 2020

The Time is Now . . . Selling Opportunities for Edtech Companies

MHT Partners  | Education Investment Bank

The demand for education technology (“edtech”) has increased drastically in the last decade amongst schools and corporations. In 2019, investments in edtech companies in the U.S. reached $1.66 billion – a 16 percent increase from 2018(1). Digitization has made the progression and steady implementation of edtech crucial in helping students and employees thrive in the classroom and the everchanging workplace. Investors are realizing this, driving them to invest more time and money in these companies in order to help advance initiatives and increase scale. Continued investment in the sector is an encouraging sign for entrepreneurial companies, ensuring the capital required to develop new innovative technologies and strategies. More importantly, favorable 2020 expected buyer demand, promising industry trends, and aligned strategic initiatives point to a time in which selling opportunities for edtech companies are ideal. That time… is now.

Expected buyer demand in 2020 is more favorable than ever for the edtech industry. After a record-breaking 2019, buyers are eager to invest in the education space as it proves to be the bridge among students, professionals, corporations, and the digital transformation process. The increasing buyer attraction is underpinned by the robust capital available for acquisitions (dry powder) in 2020. According to a survey conducted by Equiteq, 84 percent of financial buyers and 93 percent of strategic buyers are expecting the amount of capital available for M&A to increase or stay the same versus the last year. Two major factors contributing to this include an overall decline in interest rates and a rise in capital providers’ propensity to invest in a historically profitable market.(2) Furthermore, buyer demand is growing in sync with digital transformation. With the rise of technologies like big data, artificial intelligence and virtual reality, financial buyers see an opportunity to expedite the process by increasing the scale of edtech platforms. Similarly, strategic buyers are looking to acquire companies that augment their ability to meet vitalizing consumer demands or provide continuous training for their employees.

There are a couple other notable trends driving increased traction. One of these pertains to the closing gap between education and the workforce. Eight of the top deals in 2019 involved companies that offer educational services to employers and employees for purpose of retention or internal upward mobility. Those eight companies – Guild Education, BetterUp, Coursera, Andela, Degreed, MindTickle,EdCast, and A Cloud Guru – accounted for 39 percent of edtech investing in the past year.(3) Because of changing consumer demand, corporations are allocating more time and money to training platforms that enable their employees to continuously build the technical prowess needed to create differentiated customer experiences. In addition, the talent shortage among digital companies makes retention of talent a key component in ensuring the competitiveness of a company in its respective end market. Most importantly, the blurred line between higher education and the workforce presents a large market for edtech to penetrate, which buyers view as a significant investment highlight.

Another trend positively driving buyer demand is the unprecedented rise in the capabilities of edtech, largely driven by what many call the new industrial revolution or “Rise of the Machines,” which is the convergence of multiple advanced technologies like artificial intelligence, dig data, data science, robotics and virtual reality. The fusion of these technologies has fundamentally altered the way we live and work while also magnifying issues in our current education system. Edtech has begun leveraging these unique technologies to create high-quality learning experiences for all age groups.(3) However, the developments are still in infancy, presenting even more opportunity for edtech companies and buyers to capitalize.

Alvin Toffler, an American futurist and author once said that the “illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.”(3) In a world that is more digital than ever, edtech has become the focal point amongst educators, professionals and corporations as they seek innovative learning platforms that deliver results, create opportunities and offer dynamic skillsets. Because of this, the market has seen exponential growth and is highly sought after by buyers/investors. As 2020 kicks off, there is no doubt that the edtech industry is on top; no doubt about increasing buyer demand; no doubt about favorable industry trends. In the same sense, there should be no doubt on when the best-selling opportunity is. Because that time is now!

Sources:
[1] https://www.edsurge.com/news/2020-01-15-us-edtech-closes-decade-with-record-1-7-billion-raised-in-2019
[2] The Knowledge Economy Global Buyer Report 2020 – Equiteq
[3] https://www.edsurge.com/news/2019-12-30-the-past-decade-forecasts-a-new-wave-of-economic-opportunity-in-education

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