Online Education Becomes Teacher’s Pet In COVID-19 Crisis

Online education curriculum tools and the infrastructure to communicate with students remotely are playing a critical role in keeping students connected amid school closures due to the coronavirus.

Both K-12 and higher education institutions have been closing their doors to prevent the spread of the virus. School districts around the country have announced short-term closures, but the U.S. Centers for Disease Control and Prevention has said more lengthy closures might be required, perhaps eight weeks or longer, to be effective.

Even before the crisis, postsecondary schools were adopting online course offerings and textbooks were being offered online to college students. The virus will ensure that this trend will only accelerate and gain traction with school-age children.

Schools such as Western Governors University and New Hampshire University are purely online and have been stealing market share from brick-and-mortar schools, noted Mary Jo Zandy, managing director of the investment bank Berkery Noyes. “The momentum behind them will be further reinforced,” she said.

Most schools are putting instructional continuity plans in place using existing technology providers such as learning management systems and videoconferencing, according to a research report by BMO analyst Jeff Silber. “However, we believe this outbreak has increased the appreciation for online education – something that will likely continue once we get through this crisis,” the report said.

The virus aftermath should also benefit listed postsecondary schools and companies with online platforms including American Public Education; Strategic Education: Grand Canyon Education and Adtalem Global Education (formerly DeVry Education), according to BMO.

Online program management platforms for universities will also benefit, such as ones offered by 2U and John Wiley & Sons, Zandy noted. As reported by Mergermarket on March 9, 2U is working with the advisory firm Qatalyst Partners on a potential sale. The company has been facing activist pressure amid a sharp decline in its shares. It recently traded in the $15 a share range against a 52-week high of $74.25.

Another industry banker observed that it’s odd that a stock like 2U is “still getting beaten up because there’s a good argument to be made that they will be one of the few beneficiaries of the insanity” associated with the coronavirus.

BMO has raised its target prices for online education provider K12 and 2U and upgraded 2U, which provides online postsecondary and skills education, to outperform from market perform.

Michael English, CEO and founder of Forecast5 Analytics, a private equity-owned educational technology company in Illinois, projected that “there absolutely will be more and more money and investment, time and resources [paid] to online delivery systems.”

Widely-used technology such as Google Classroom and learning management systems such as Schoology, which was acquired by PowerSchool in October 2019, are playing an important role in the transformation, English said. Onex, the Toronto-based investment management firm, invested in California-based PowerSchool after it acquired PeopleAdmin in April 2018, sharing equity ownership in the edtech company with Vista Equity. For its part, Forecast5 recently invested in learning management system Docebo to connect its own software with those of its school district clients.

Districts that are fortunate enough to have children with access to laptops or iPads are benefiting from the many types of technology available for remote learning. But the coronavirus’s public school closures are casting a harsh spotlight on the economic inequality between wealthy suburban districts and inner-city districts that lack access to one-on-one technology or broadband, noted English.

Zandy observed that some schools are literally sending packages of printed materials home to parents, reflecting the uneven level of preparedness for remote education in the K-12 segment.

Another challenge is providing free meals to at-risk students. Forecast5 has an application called 5Maps which helps school districts deliver food to where students live, English said.

Another area of growth is online proctoring, Zandy said. “Crucial higher ed online proctoring solutions are going gangbusters,” she noted. Examples include Proctorio, Examity and Respondus. In May 2019, Examity, a Massachusetts-based provider of online proctoring services, was acquired by Great Hill Partners. Michael London, CEO, told Mergermarket the PE firm invested $90 million, which represented a majority stake in the company.

Respondus enables students to take online exams from home, while deterring cheating and protecting the exam content itself. Both of its applications integrate with a school’s learning management system, the company said in a coronavirus update.

Companies involved in delivering online education technology were already selling at EBITDA multiples in the teens and low 20s before the crisis hit, as reported by Mergermarket. For example, in March 2019, GIC and Insight Venture Partners fetched more than 20x EBITDA for their antiplagiarism software platform Turnitin, selling to Advance Publications for $1.75 billion. More recently, Leeds edtech portfolio companies Campus Management and Edgenuity sold for more than $1 billion to Veritas Capital, or about 13.5x EBITDA, according to a January report by Mergermarket. Raymond James advised on the sale.

Even smaller companies have seen “revenue multiples up in the stratosphere,” Zandy said. “The coronavirus makes it pretty obvious you need these solutions.”

Silber of BMO agreed. “We do believe the appreciation for, and the acceptance of, online learning has changed. This could be a turning point for the industry, helping to usher in an increased usage of this format,” he said in the report. “We see online penetration rates increasing over time.”

 

Source: Forbes