When you imagine solutions to the K-12 education gaps that are left as a result of the Covid pandemic you wouldn’t think of private equity. However, one private equity manager tells Mergers & Acquisitions that there remains opportunity for investment in education services. Here’s why:
Recently, Los Angeles-based Levine Leichtman Capital Partners exited its investment in GL Education, a provider of formative assessments for schools and school groups in over 100 countries. This deal marks the end of six and a half year hold period for LLCP in which they grew Ebitda about 2.5x from its initial investment.
Andrew Schwartz, a partner with Levine Leichtman Capital Partners, explains the interest in K-12 education services. “The pandemic really has had some long-lasting impacts where we see some strong themes if you will. One area are teachers. One of those groups of employees that were massively affected in a very difficult way through the pandemic. Kind of like healthcare workers, teachers were frontline workers and were in there stretched too thin.”
Schwartz says that services like GL Education make the lives of teachers easier and more efficient. GL, for example, offers tests and assessments that provide student data to teachers. The data allows teachers to highlight strengths, gaps and barriers in learning; identify and support students with educational needs; provide evidence of progress; and improve teaching strategies.
He notes the learning loss and gaps that the firm has identified among children that were students through the pandemic. K-12 students have fallen behind in specific areas, particularly in reading and math. Through assessment tests, and in-school or out-of-school tutoring, the firm believes there is a real demand for education services to help quell the widespread loss of learning. He also identifies the human side as it relates to the social and emotional health of students as a driver for demand for education services.
“I, unfortunately, think it’s going to be something that we’re going to be dealing with for a very long time as a society and hopefully there are companies out there developing products that can help. I think it’s one of those sectors that’s pretty resilient,” says Schwartz. “If you look at everything going on in the broader macro environment, there’s a lot of flight to safety, but also that has growth, and education is one of those sectors.”
Looking back to the great financial crisis, Schwartz notes that education budgets were only cut by around one percent when manufacturing firms were down 30 percent. Education budgets are mostly government funded and based on a per-pupil model that doesn’t change. That leaves the door open for adoption of new technology to make up for what was lost.
“Those budgets hold up. If you can find the right sectors that are either bringing something new or disruptive or just has real tailwinds, you’ll get that combination of safety with growth,” Schwartz adds.
Have you noticed learning gaps with your child or child’s peers within the K-12 eduction system? Let me know what you have noticed at [email protected].