Education

Edtech The New Kid In SPAC Class


Remote learning has enjoyed a tailwind from Covid-19 and the special purpose acquisition company market has taken notice, with five education SPACs introduced so far this year. 

By Marlene Givant Star

So called SPACs, also known as blank check companies, have a certain amount of time from their public listings, typically two years, to merge with a private company, giving that target another pathway to becoming public. SPACs have seen their profile among investors improve recently for many reasons and now they are emerging as a viable strategy for companies in the education sector. 

“The public market has had very little exposure to the (education) sector,” noted Susan Wolford, chairperson of Edify, a SPAC launched in mid-January. 

Wolford said the SPAC trend is new for education partly because the sector itself is relatively young, with approximately a 20-year history in the public markets. What’s more, technology has only begun to play a major role in education in the last 10 years.  

Benjamin Vedrenne-Cloquet, CEO of EdTechX, a SPAC that also debuted this month, echoed her comments, telling Mergermarket that education or edtech companies globally represent only 5% of the $5 trillion education market. For healthcare, the figure for listed companies is 50%, he said.     

While large education publishers such as Pearson, and certain school operators like early childhood provider Bright Horizons Family Solutions are public, many large education companies have been taken private in recent years. Some of these players include supplemental education providers like Renaissance Learning, taken private in 2011, and Plato Learning, now called Edmentum, in 2010.  

Large private edtech companies such as Thoma Bravo-backed Frontline Education and Vista Equity-backed Power School could be good targets for SPACs, said two sector bankers.  

The two companies have “very sticky products” sold to K-12 school districts and their products are easy to use in a remote learning context, one said. Both businesses still have progress to make, in penetrating the K-12 market and should continue making acquisitions to incrementally expand their total addressable market, the banker added.

EdTechX Chief Investment Officer and Chairman Charles McIntyre noted a big difference in valuations between education companies in the public versus the private markets. The difference is magnified for tech-enabled businesses. “We benefit from the arbitrage,” he said.  

This differential represents an attractive proposition for founder-owned and private equity-owned businesses, which are increasingly looking to SPACs as an exit option. “This gives us a huge competitive advantage over private acquirers in the sector,” McIntyre said.   

There are currently five education SPACs in the market or close to launching, according to a Jan. 5 report by HolonIQ. In addition to Edify and EdTechX, they include Adit EdTech Acquisition, Class Acceleration and OCA Acquisition. 

Class Acceleration CEO Michael Moe recently told Mergermarket the company has already identified a list of more than 100 targets, with a goal to acquire a digital learning business worth more than $750 million. In addition to the U.S., the CEO said Vietnam, China, India, Indonesia, the Philippines and Singapore are important markets because of their cultural emphasis on education, their growing economies and the size of their youth populations.  

BMO estimates there are six times more education companies large enough to go public than just 10 years ago. In 2010, BMO determined there were 16 education companies with more than $500 million of enterprise value. Today, the figure has swelled above 100 because of the growth in education technology, said Wolford, who was formerly vice-chairman of the investment banking firm.   

Education lags the healthcare sector, which digitized in the 1990s, Wolford said. But schools, even postsecondary schools, resisted technology for years. 

Marlene Givant Star is New York editor-sector coverage for Mergermarket and Dealreporter. She can be reached at marlene.star@acuris.com



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