Skills and training M&A deal volumes have continued to outperform other sectors throughout 2023. Victoria Giles and Carl Parker explain why the broader (ESG) agenda is driving transactions, and 'recruit, train, and deploy' has become a sector mantra.
During the 12 months from October 2022, professional and corporate training accounted for 19.4% of transactions; skills: 33.3%; and digital learning solutions: 47.3%.
Financial investors (private equity and venture capital) dominated activity, accounting for 60% of transactions.
UK skills and training deal activity - rolling quarterly annual total volume trends
Some 77% of employers are having difficulty in filling roles – a 17-year high – according to Q3 2023 data from Manpower Group.
Skills and training services play a dual role in resolving this. Firstly, they plug gaps to fill roles. Secondly, they attract and retain staff by offering continuing professional development (CPD).
The global pandemic made the workforce rethink its priorities. Diversity, equity, and inclusion (DE&I) and social impact have become important metrics for job seekers.
Employers offering CPD are also more attractive in a 'buyers’ market' for candidates, enabling a lifelong learning environment.
Over the last 12 months, there's been growing investor interest in skills and training providers that can help employers deliver overall
ESG impact, social mobility, and broader critical CPD.
Training and apprenticeship provider HIT created an Employee Ownership Trust (EOT).
The move allows current employees to participate in up to £3,600 of profit share as a tax-free bonus and have a more meaningful say in the business.
Financial and social benefits, such as these, feature heavily on the want list of potential employees.
How we helped: adviser on EOT structures
Recruitment giant Hays purchased a majority stake in Vercida, a DE&I organisation.
The move fits Hays Group's strategy to deliver a broader range of workforce-related services to help its customers with challenges beyond recruitment.
Vercida will help its clients that recognise DE&I as essential but lack the expertise to change.
How we helped: buy-side due diligence
Palatine Private Equity's Impact Fund II made a significant investment in Inclusive Employers.
Inclusive Employers is a membership organisation that helps businesses build an inclusive workplace through consultancy, training, and on-demand tools and resources.
It offers guidance around attract and retain the best available talent by creating a truly inclusive culture.
How we helped: sell-side advisory
A UK skills-shortage, particularly in emerging technology, is hindering the progress of several business sectors, from accountancy to data storage.
To combat this, companies are turning to specialist skills and training providers. They're also vying to capture and upskill talent at the beginning of their careers through apprenticeship schemes.
Apiary Capital completed a significant investment in First Intuition, a specialist
accountancy training provider.
Apiary's investment will help First Intuition grow its apprenticeship and commercial training streams, continue its regional expansion, and pursue strategic acquisitions.
The move comes as the accountancy industry faces a recruitment crisis, partly driven by a lack of a skilled workforce.
How we helped: vendor financial and tax due diligence
US-based global infrastructure learning resource, the Uptime Institute acquired UK-based CNet Training.
CNet designs and delivers professional network and data centre infrastructure training programmes.
As the global reliance on data centres grows, training and recruitment haven't kept up.
CNet solves this by giving data centres access to corporate learning and development technical education programmes.
How we helped: buy-side financial and tax due diligence
Award-winning education and training business The Progress Group acquired AC Education, a provider of eLearning for children's services and the education sector.
AC Education offers 150 specialist courses for those working in children's services and education.
The acquisition comes two years after The Progress Group's purchase of eLearning provider Grey Matter Learning
How we helped: sell-side advisory
As well as strong end-user demand, multiple factors make skills and training businesses attractive to investors.
Amid a talent shortage, the sector's end client is desperately looking for services that span the whole employee lifecycle. This has led to demand for 'recruit, train, deploy' companies.
For example, Hays, traditionally a recruitment business, has a skills division, which recently successfully tendered to join the Government-approved Flexi-Job Apprenticeship Agency. This Department for Education initiative was developed in 2022 to ensure apprenticeships reflect modern models of employment in all sectors.
The fragmented skills and training sector is prime for private equity to create end-to-end learning pathways through a buy-and-build strategy. Likewise, there's an opportunity for trade buyers to bolt on extra services and deepen capability through acquisition.
UK skills and training deal activity - rolling quarterly annual total volume trends
The normalisation of hybrid working has accelerated demand for online and virtual/remote training, making digital learning solutions the most active skills and training subsector for M&A deal volumes and private equity and venture capital transactions. In particular, there's been a notable amount of startup fundraisings in this category.
Many education, skills and training providers inherently support positive social impact, from creating a more diverse workplace to improving social mobility through apprenticeships.
This makes them attractive targets for the increasing number of impact funds dedicated to ESG.
ESG regulation, such as Europe's Corporate Sustainability Reporting Directive CSRD, makes it imperative for companies to demonstrate good ESG practice. A partnership with a skills and training company can fulfil this.
In certain industries, staff must meet regulatory requirements and maintain certified status.
Ongoing training and CPD is particularly critical in finance and public services, such as healthcare and education, creating resilient end-markets for skills providers in these sectors.
As we face elections on both sides of the Atlantic, investors in some sectors are pressing pause until the results. However, (in the UK at least) there's cross-party consensus on the value of education and skills.
Investors are attracted by the stability of policy related to skills and training, for example the Apprenticeship Levy (even if some reform is expected). The levy has consistent cross-party support, given the criticalness of closing the skills gap, and the combined role government and independent training providers play in this.
The skills and training sector is polarised between large corporations and a fragmentation of smaller players. This creates an opportunity for private equity to act as a conduit between the two by buying and scaling small companies, creating value over time to the point they are ready for a trade sale.
UK skills and training deal activity - by buyer type rolling quarterly annual total volume trends
A cautious but steady return of lender appetite through 2023 is supporting private equity to the sector. Lenders are drawn to the sector's positive ESG characteristics and innovative business models. However, its biggest attractions are resilient cash flows from key business critical services and good revenue visibility.
Skills and training M&A has proven more immune to the macroeconomic headwinds facing other sectors. Long-term drivers, such as the UK skills shortage and a focus on ESG, will promote healthy deal activity well beyond the next twelve months.
There has been significant interest among private equity investors within the sector. In our recent Private Equity in the Spotlight podcast episode Humza Khan and Victoria Giles discuss business services transactions with industry experts addressing the rising trend in investment and the future outlook.
