UK mid-market PE has made limited inroads into Edtech, but high profile targets are now testing the market. With over 800 Edtech companies exhibiting at the industry’s go-to event, how does PE identify areas of value in a crowded ecosystem?
UK education technology spend is expected to reach £3.4bn by 2021, growing at 22% year on year. The UK is a global leader in Edtech; attracting £178m of VC funding in 2017, 34% of the global total.
Education has been a challenging market to sell into, but historic demand inhibitors are receding:
Budget pressures: technology purchases can reduce cost / administrative burden and improve outcomes - subscription pricing models allow cost to be spread over several years.
Complex route to market / fragmented buyer base: purchasing frameworks, consortia, buying groups and multi-academy trusts/federations now share best practice and drive/consolidate demand - supported by ‘try before you buy’ technology marketplaces.
Unclear benefits case: government support for ‘Edtech Testbeds’, to co-design and test products, and generate evidence of tangible, measurable benefits.
Fundamentally, the legacy overhang and inertia which have held back Edtech are now turning into opportunities.
How is this evolving?
Lack of buyer sophistication and limited IT capacity meant that buyers went to ‘one-stop-shops’, with out-dated ‘one size fits all’ approaches, and significant incumbency benefits (Capita, Unit4, RM and Pearson come to mind). For many sub-sectors (especially in universities), homegrown systems dominate but are increasingly unfit for purpose. This provides a fertile ground of (poorly served) brownfield and greenfield opportunities for Edtech companies to target.
A new cohort of ‘digital native’ teachers, academics and administrators are entering leadership positions and changing this dynamic. They are comfortable with ‘consumerised’ tech purchasing, and freemium models that go direct-to-teachers, driving word of mouth and bottom-up adoption (e.g. Twinkl). Parents and students are likewise becoming more demanding, expecting their interactions to match the user experience and convenience of the online services they use day to day (e.g. Parentpay).
Consumers at all levels of the value chain are demanding higher levels of service, that the dominant market players are not meeting.
Where are the opportunities?
The DFE’s Edtech strategy, published in April 2019 identifies five areas where technology can improve education delivery and value for money: 1. administration processes; 2. assessment processes; 3. teaching practices; 4. continuing professional development; 5. learning throughout life.
NESTA identifies five ‘wicked challenges’ which can be tackled with technology: 1. teachers burdened with excessive workload; 2. ‘one-size-fits-all’ learning with inflexible learning pathways; 3. narrow assessment inhibiting teaching and learning; 4. difficulty of sharing insights between institutions; 5. inconsistency of education provision and lack of social mobility.
These provide helpful structure, but by no means capture the opportunity offered in this vast and diverse sector. Armstrong has mapped some key themes on to a simple framework:
The Armstrong Opinion
With some notable exceptions (e.g. Texthelp/LDC, Impero/Connection, GL Education/Levine Leichtman), the complex and fragmented Edtech sector has been tricky for the UK private equity mid-market to access. This is changing due to fundamental shifts in buyer behaviour, and we believe that Edtech will offer significant opportunity in the coming years.
If you would like to discuss the themes in this article, and investment opportunities in Edtech in more detail please contact;
• Mike Callow, Head of Technology, at firstname.lastname@example.org or +44 7894 594 500
• Simon Hemsley, Head of Business Services, at email@example.com or +44 7957 340 534