Slower economic growth from political and Brexit uncertainty hasn’t dampened the resilience of the eLearning market, with the UK market growing consistently at over 10% pa in recent years. This has mainly been driven by the shift to online channels, growth in compliance content and increased penetration among small and medium enterprises (SMEs).
eLearning sector is ripe for consolidation
Despite further global economic consequences from COVID-19, the pandemic has simply accelerated the need for digital and online learning capability, and this resilience further underpins the already-appealing value drivers associated with the sector.
The eLearning landscape is also highly fragmented which makes it attractive to entrepreneurs and investors pursuing a range of growth strategies, heavily influencing historic and future consolidation trends.
As many offices remain closed, businesses must now operate in the context of rapid change, yet there is still the overwhelming belief that the disruption will simply accelerate long-term growth and stimulate innovation in the eLearning sector because providers are well placed to offer value to clients in this period of significant workplace disruption. Those providers may use M&A to adapt quicker, enable further product development and gain further market share.
“Providers that adapt the quickest and focus on product development will win” – Blended platform and content provider
Trade players (eg, Learning Technologies Group), pure play equity investors (eg, Apse Capital and Altier Capital) and private equity-backed trade (eg, Access Group) have all made a concerted push in the eLearning sector completing acquisitions across 2019 and the start of 2020, driving deal multiples upwards into double-digit territory.
There are over 1,000 eLearning platform providers in the UK, many with revenues below the reporting threshold, further highlighting the opportunity for consolidation. eLearning assets, particularly those of scale, with inherent technology IP and recurring Software as a Service (SaaS) and Content as a Service (CaaS) revenues have had the most competition for investment.
With increased fragmentation expected because of COVID-19 and differentiation remaining a key challenge for providers, we expect consolidation to simply accelerate in the longer term.
“There are thousands of LMS’s, and lots of content companies because it’s not that hard to do. Consolidation was happening prior to COVID anyway, and this will make it more extreme” – Content provider
The wider skills and training industry is expected to remain dynamic, disruptive and in constant evolution, with both investors and corporates continuing to seek strategic acquisitions to diversify.
Global eLearning is on the cards
International expansion also remains top of the agenda, where corporates and workforces need to collaborate and align learning strategies globally more so than ever. Fuse, Learning Pool and Learning Technologies Group have all made a start developing their presence in the US, a key geography that is also fragmented and ready for further consolidation.
eLearning providers with international portfolios are also more likely to be protected by the different lockdown stages and policies between countries in relation to coronavirus and there's already evidence that demand is starting to return in the EU and APAC. Most respondents in our report expect a market return towards the second half of 2020.
The consequences of COVID-19 for eLearning
We've seen transactions in the eLearning sector that have enabled businesses to:
blend a platform with additional innovative technology and expand content solutions (such as Learning Pool’s acquisitions of Mind Click and HT2 Labs)
lock in more contracted and recurring revenues (eg, Apse Capital’s acquisition of Kallidus and follow on acquisition of Engage in Learning)
facilitate access to new sectors and associated client bases (eg, MAPAL’s acquisition of hospitality focussed eLearning provider Flow Hospitality)
support the up-skilling and re-skilling of the nation’s workforce (eg, Access Group’s acquisition of health and social care learning provider eLearning For You).
We expect this to continue after lockdown ends, as unemployment is expected to peak and differentiation between providers will become even more critical as new entrants use the economic disruption to launch new technological innovation into the market.
“It’s a highly fragmented market, full of providers that struggle to differentiate from one another – has all the characteristics where a sensible buy and build works nicely” – Training provider
Request our report on the insights and views from leading executives within eLearning (content and platform) businesses across the UK to understand the wider trends emerging in the sector.