Wider macroeconomic factors, such as interest rates, cost-of-living pressures and geopolitical concerns, led to reduced M&A activity and valuations in 2023 overall. But education technology (EdTech) has performed significantly better than other sectors.

Why is EdTech bucking the trend?

The following factors have all increased the attractiveness of assets in this market.

Increased digitalisation and acceptance of technology

The English schools market is highly regulated, and is bound by regular Department of Education updates on policies and standards and guidance on curriculum. This drives demand for accessible, up-to-date teaching tools and systems to support teaching standards and procedures. EdTech is considered to be contributing to improving pupil attainment and the management of teacher workloads but also budgetary pressures (with technology driving cost savings).

The pandemic also accelerated the cultural shift in schools to adopt online teaching tools. According to the Education Technology Survey 2020-21, eighty percent of teachers in primary schools (84% in secondary schools) introduced or increased the use of technology across 2020-21. This is a trend we expect to continue.

Regulation driving use of technology

Government and regulation policy is a big driver in the use of technology. Technology has been critical in meeting various demands, from compliance and record-keeping to HR management, safeguarding, and training commitments. Both the Government and the opposition are fully committed to the investment in digital solutions by the education sector. This bi-partisan support addresses any concerns that market conditions could change as a result of a change in government.

Sticky revenues

Technology solutions are generally an attractive area for investment and acquisition due to their higher barriers to entry (given the upfront development costs) and the typically sticky revenue base (especially for subscription-based software solutions). This is further exaggerated in the education market with schools notoriously less likely to shift suppliers.

Significant social impact

EdTech providers make themselves attractive targets for the increasing number of impact funds and acquirers dedicated to an environmental, social, and governance (ESG) purpose.

Transaction statistics imply resilience

M&A in the EdTech sub-sector has remained resilient to the challenges created by the rise of interest rates and inflation. Total deal volume per quarter has continued in line with the trend from 2022. With inflation falling and interest rates stabilising, we expect to see a resurgence in deal flow in 2024.

Chart depicting the number of deals (2029-23)

Listed EdTech companies have enjoyed a buoyant year in comparison to the broader technology sector. The average multiple for these EdTech companies in December 2023 is 6.6x.

chart depicting the total enterprise value/revenue multiples

Source: S&P Global Market Intelligence

Overall, there continues to be strong interest in the education sector from both strategic trade parties and financial investors, such as private equity, and venture capital. With significant levels of cash to invest held by the financial investor sector, we expect demand to continue into 2024.

Sources: Government Education Technology Survey 2020-21, Mergermarket, Zephyr, MegaBuyte

Recent deals in the market

Several landmark transactions suggest evidence of continued traction in the market:

  • Twinkl, the online educational publishing house, was acquired by the private equity house Vitruvian partners for a £500 million valuation
  • Totara, the learner management system, was acquired by the private equity house Tenzing from Five V Capital for an undisclosed sum
  • Integris, the education-focused management information system and division of RM plc, was acquired by The Key Group, the education-focused software and service provider, for a £16 million valuation
  • Tribal, the education-focused enterprise resource planning and customer relationship management provider, was acquired by Ellucian, the tertiary EdTech provider, for a £172 million valuation

Grant Thornton EdTech deals

As a leader in the education sector for M&A advisory, we've worked on over 75 transactions in the past seven years, supporting clients such as Kaplan, Pearson, International School Partnership, Estio, Storal Learning, and many more in meeting their strategic and valuation objectives.

Outlook for the EdTech sector in 2024

The education technology market experienced a generational shift in attitudes during the pandemic, which has driven significant growth and investment in the sector. While it hasn't been immune to broader macroeconomic challenges, the sector’s strong characteristics – such as a sticky customer base and bi-partisan Government support – have provided resilience when compared with other sectors.

This strong grounding, coupled with falling interest rates and inflation, suggest the sector is well positioned for growth in 2024 and beyond.

Subsector trends in Q4 2023

  • Orovia Group, award-winning payroll, HR, and budget-planning software provider to the education sector, on their sale to TES Global
  • Bud Systems, the learner management system, on their fund raise with Maven Capital
  • Giglets, the online literacy tool for schools, teachers and parents, on their sale to ILT Education
  • Sumdog, the online Maths and English tool for schools, teachers and parents, on their sale to eEducation Albert
  • National Education Group, the digital continued professional development tool for teachers and schools, on their minority investment from Synova
  • ISAMS, the management information system software provider, to IRIS Software Group
  • EveryHR, the HR and back-office software provider, to IRIS Software Group

For more insight and guidance, get in touch with Adam Bunch.