U.S. Education Investment Landscape 2025

Thank you everyone for joining, today's webinar hosted by Elly Kay's Education Practice.

We are very excited to be sharing with you, a few themes. We are looking to cover, one, an overview of how the education investment landscape trended in twenty twenty four. You know, what are the implications, for twenty twenty five on the basis of that. We'll also, in that section, be covering, some of the recent policy changes and regulatory changes, that that, you know, we can observe and the potential impact that they're gonna have on the sector.

The second thing we did wanna spend some time was, on was to understand which are the opportunity areas that LEK's education practice sees for twenty twenty five. Now these have been derived on the basis of, some of the historical trends that we have seen, but also on the basis of the interactions that we have been having in the market.

And, I think that section is gonna be very interesting because not only will we talk about the themes that we think are gonna be relevant and attractive in twenty twenty five, we'll also try and lay out a few interesting characteristics associated with each of those themes as you think about either good business ideas or investable opportunities in those particular segments. And the last section here really, you know, we won't spend too much time on that. That's, more focused on, helping identify if if you interesting, you know, targets or opportunities, on the back of one, the themes that we'll be discussing, as a part of the second agenda, but also on the back of looking at the situations that have transacted, historically and and maybe ready to come to market now.

But before we get started, to, quickly introduce ourselves, my name is Jatin Sethi. I'm a managing director, you know, in in the u in the Chicago office.

I lead our education practice in the US, and Americas more generally. I've been focusing on the education sector for, most of my career for about fifteen years now.

And, you know, I spend a lot of time across everything from pre k through twelve, higher education, upscaling, reskilling.

I'll quickly hand it over to Laura to introduce herself, and then we'll get started with the presentation.

Wonderful. Thank you, Jiten. Hi, everyone. Laura Brookhiser, a managing director in LEK's Boston office.

Along with Jiten, lead a lot of our education work and also, do some work in the consumer side as well.

Prior to LEK, spent a number of years advising, philanthropists and impact investors in the education space as well, at the Bridgeband Group and briefly at the Gates Foundation. So, happy to have you all here today, and and looking forward to diving into the content. Thanks, Jiten.

Thanks, Laura.

I mean, we need to do this, for those of you who do not know LEK's education practice to give you a brief introduction to the practice, but we won't spend too much time marketing, the practice to you guys. But at high level, you know, as you think about the education practice, we are, globally a team of about a hundred consultants that only do education sector work.

We do about hundred to hundred and fifty education sector projects every year across the entire spectrum of pre k through twelve, higher education, professional training and development, corporate training, upskilling, reskilling.

You can see some of the themes that we help, address as a part of our work. But broadly speaking, we answer questions that CEOs or board members or senior leaders in, education companies have, with regards to their profitable growth strategy. We are not pedagogical or curriculum experts, but much, much more strategy consultants focused on the education sector.

Besides helping companies that do, you know, deliver education across the spectrum, we also help EdTech and service providers that cater to those sectors. And, you know, once again, you can observe some of the thematics, all the areas that we have advised our clients in across those verticals.

With that, we are ready to get started, but a few housekeeping, items. One, we have about sixty minutes for today's presentation, but we are going to, you know, spend about fifty minutes presenting to you and reserve about ten minutes towards the end for any questions, that you may have. So for all the attendees, if you do have questions, if you look at the bottom of your screen, there should be a q and a button, which will allow you to post any questions that you have to us, and Laura and I will be happy to, address those towards the end of, our web conference today.

Secondly, also wanted to mention that, we will be sharing this presentation with you.

It'll go live tomorrow on eddy k's, education practice website, and it'll also be emailed to all the risk all the attendees, and registrants, of today's conference.

And the live recording of this conference will be made available, at a later point once it has been cleaned up and cleared by our marketing. But you should be getting the presentation as early as next week.

Great. So, you know, to get started with the first, topic, which which is, you know, having a look at how the investments in the sector have trended over time, specifically in twenty twenty four, and, you know, do we see a turnaround happening in the sector or not?

Broadly speaking, when you look at, the overall, you know, market and when you evaluate it on the basis of, the number of disclosed transactions and how much money has been deployed in the sector, one thing that pops out is that twenty twenty one was probably a peak investment year, where about twenty two billion dollars were invested in the sector.

And, after that, the market really started taking a dip coming out of the pandemic as the market slowed down. Some concerns around asset funding, started surfacing.

But the good news is that in twenty twenty four, the market, you know, again, kind of peaked at about, nineteen billion dollars, slightly shy of where it was at twenty twenty one numbers, but much higher than, the numbers, in the preceding years. Now that said, we want to be a little cautious out here because, a lot of the, you know, transaction value of volumes is driven by some of the large transactions that happen in a given year. And in twenty twenty four, it was driven by, some of the large investments, that were made, in the sector by some of the, you know, mega funds.

And, you know, what what's more interesting perhaps to also evaluate is the total number of, deals that the sector saw. And you can see that at the bottom of the, chart in the table below.

So the number of deals also peaked in twenty twenty one and then started coming down after that in twenty twenty two and twenty twenty three. But the good news is in twenty twenty four, we are seeing a little bit of a reversal out there in terms of total number of transactions, which may indicate a a a reversal in, you know, just overall investment and interest from investors and corporates alike in in the sector.

The other interesting compare comparison out here is to the overall, m and a transaction sector, in in the Americas. And, you know, when you look at that, that particular market was, you know, also peaked in twenty twenty one with about three point five trillion being deployed, in the market, and then it, crashed and started seeing some recovery in twenty twenty four. But when you compare to the pre pandemic or, you know, numbers to twenty twenty four numbers, education as a sector has fared better, which talks to the resilience, of the sector and how a lot of investors see it as a defensible invest investment theme overall.

Won't spend too much time on on this. We we kind of discussed it, on the previous slide, which is a lot of the, value in the market is driven by some of the mega deals that happen. And you can see that that was true for both twenty twenty one and twenty twenty four. We are always interested in analyzing what happens in the transaction market, you know, at the smaller end of the spectrum. So, you know, below two hundred million dollars of EV, two hundred to five hundred million dollars of EV.

You know, what we can see there is that especially, in the under two hundred, million dollars, segment, there was an increase in investment activity in twenty twenty four, which hopefully also means that some of these situations are gonna become more prevalent and relevant in the coming years, and, investors should be able to see them, as potential opportunities in the future.

What's, perhaps more interesting is to analyze the data in a slightly different way and, you know, basically have a look at how the transaction volume has varied on a quarter by quarter basis.

And when you take, you know, look at the data in that way, what you can definitely see is that twenty twenty four, all four quarters performed higher than, twenty twenty three and even twenty twenty two. Right? And when you look at the four, quarter cumulative average, that particular trend line seems to be pointing in the upwards direction. And I think that's probably reflective of some of the exuberance that you may have heard in the market from fellow investors and bankers as they've talked about, the market really, coming to realization in twenty twenty five and becoming much, much more active, in twenty twenty five.

Another encouraging, you know, data point is that over the years, private equity, investments have taken share in the total number of transactions that have been led by private equity versus corporate. And, you know, in twenty twenty four, specifically, that share peaked to about twenty five percent. This is again reflective of the fact that for a lot of investors, the education sector, is a fairly defensible, sector, and, there is a high level of, interest in the sector along with a few other sectors like health care, especially when, things are going tough in the overall transaction, market.

Also wanted to spend some time looking at which were the underlying sectors, that were emerging as winners.

And the picture out there is quite steady, Eddie. Right? So corporate training, professional upscaling, k twelve, and higher education, typically, over the years have tended to see the most volume of transactions, and that was also the case in twenty twenty four.

You know, and in just from an average share perspective, though, like, in some of the smaller segments, we did see some activity pick up. For example, in publishing in twenty twenty four, we saw more transactions that have happened, in that particular sector than historically.

You know, when you look at that particular data point, so this this view is a little bit more of a, volume view. But if you look at, the value view, I'm sorry about that.

The presentation seems to have gone wild. Just give me ten seconds, guys. Sorry about that.

Gonna try and come back to the slide that we were on.

And yeah. And as you look at, as you look at the, you know, the the the the same data by, actually the amount of value being deployed, that that also gets heavily influenced by some of the large transactions, of course, that have happened in the market. And, what emerges is, that k twelve as a segment has been pretty active over the last three years and and seen a lot of activity. And I think some of you our discussions with you and your experiences would also kind of reflect that that k twelve has been fairly, attractive.

Higher education, as a sector seems to have, taken a little bit of a back seat and overall value, except last year, because of the tran you know, Instructure's transaction, it it emerged again. What's interesting to see is that, corporate training and professional, upskilling that used to have a significant share even in value perspective, have you know, did not contribute to as much over the last year. And this is not really surprising because as you think about, the majority cycle of some of these assets, you know, there there is a limited number of assets in the education sector, and, you you can typically see the same investment, cycle as some of the PE funds have of, like, four to five years.

And so there are few sectors that are attractive in a few years and then come back later. And I think, you know, our some of the things that we're gonna talk to are also gonna point to the fact that we are slightly more bullish on the upscaling and professional learning sector, which we feel, should see more activity, in in this particular year.

Alright.

Alright. So with that, you know, how do we feel about twenty twenty five, you know, based on all the discussions that we are having?

You know, we the sense that we are getting is that there's a much better alignment in terms of valuation expectation between buyers and sellers. So that should support the transaction market in twenty twenty five.

The underlying fundamentals for, some of the sectors are very, very strong, and and we have tried to tease out some of those themes, and we'll talk about them in the next particular, segment.

And so we we we anticipate that some of those are gonna be supportive of the market. The challenges today, of course, are, that, policy and regulations. There's a lot of flux there, and so we'll spend a little bit of time now talking about some of the themes that we are seeing there.

Also a little bit of investor fatigue because we have seen a few of these assets come to market in the recent times and some of the transactions haven't completed. So it'll you know, I think that's, probably one of the challenges also that, a lot of the sellers will have to kind of focus on and and positioning their, assets in the story, and bringing out, you know, what's new, about the situation to the market as I think about closing some of the transactions.

With that, let's spend a little bit of time on on some of the policy and regulatory changes. Now this is a difficult one to capture, because there's so much change happening. And although quite a few initiatives have been or policy changes have been announced, it's still unclear how, you know, how they'll be exactly implemented. So it's, it's, too early to be able to call out on the likely outcome, of some of of these policy changes.

And a lot of these changes are, quite interrelated. Right? So there are some direct factors that may influence underlying sectors, but there are also indirect factors that may influence them. And so we need, some more time for more information to come through before we can, you know, call it exactly, as it is, whether it's positive or negative for each of the education subverticals.

But what we wanted to do here was to share with you some of the changes that we are tracking or policy changes that we are tracking and potentially how they could impact some of the underlying sectors both across k twelve and higher education. So we'll start with, k twelve. I think the four big teams that we are keeping an eye on, one is with regards to teacher training.

As as, you know, some of you are aware, there were the administration had proposed a cut on professional, development or teacher training.

That's been temporary blocked, but, that's something that we are evaluating because, as you think about teachers, they're usually, probably one of the more underpaid segment of the community. A lot of them depend on high quality, support and training and career development. And, you know, if there were cuts in PD and teacher training, I think that's gonna, impact the progression negatively. You'll see more churn, it may create more opportunities for, substitute teacher providers and alternate education providers, to cater to the segment.

But that's one area that we are keeping an eye out for.

When it comes to title one federal school funding and school of choice, there is a push from the center, to to, direct more funds towards, private placements, via ESAs and voucher systems. And, so that's another thematic that we are spending time on. While this may open up the opportunity for, private, school providers, it may negatively, affect some of the school districts that, count on the enrollments for their funding. And, you know, if they see a drop in enrollments and, hence, funding, they may find that the budgets are slightly more constrained. So, we we are, again, keeping a close look on this one.

Just, the dismantling of the, Department of Education and and, hence, you know, where's where where will some of the, an you know, some of the functions that they use to execute set, including title and funding, ID, etcetera. That's another one that we are, spending time on. Currently, I think the in the short term, the implication of this is really that there's lack of clarity, on, some of, you know, who's gonna be running which operation, which may result in potential delays in allocation of federal funding. And and really, we started actually seeing the market react to this particular, possibility even before it was announced in March.

And, you know, when we talk to some of the school supply companies and, you know, not necessarily the, core, you know, curriculum providers, but more on the, supply side, you know, and this could be, science equipment, you know, medical supplies into schools, furniture, etcetera. And we we, you know, we started picking up, hesitation, among school leaders and, district leaders to actually deploy more capital in those segments.

And and and not that their budgets, they didn't have the budgets because their budgets got decided in, you know, last year, June and July, but more they were just hesitating because of the lack of clarity, for the future.

And, the third theme, of course, that we are spending time on is idea and, you know, with with the, you know, with DOE being eliminated, that's gonna have an impact on, you know, who's running some of that, allocation.

I don't think there is any discussion around the the overall spend being reduced out here, but just how some of the states and districts decide to allocate their funds if there is no federal oversight. That's the other thing that we are spending some time on, and trying to understand.

Now the implication of the k twelve sector, again, it's too early to call what you know, which segment will be possibly impacted and negatively impacted by just a few themes. Right? So for for example, we think coming out of this private K-twelve schools, will be better positioned to leverage some of the ESA voucher systems and, be able to capitalize on that. And so we should we should see more private supply coming into the market. That'll, of course, mean more competition, but net, it feels like it's gonna be positive for them. For EdTech providers, tutoring, and test prep companies, at the district level, or the public school level, there may be a tighter budget, which could, you know, be a a, a headwind, in in the short term depending on some of how some of the policy plays out.

But that might also create opportunity especially as you think about ESA funds and parents have access parents having access to those funds to think a little bit more direct to parent or direct to student also. Right? So, you know, it's it's gonna, you know, it's gonna be interesting to see how that plays out. For alternative, teacher certification, temp staffing, in the very short term, because of the lack of clarity that we talked about, there might be a little bit of a hit.

But, in the mid to long term, overall, there should be more demand. There's a there there's already a shortage of teachers, so there should be more demand for, teachers, substitute teachers, and and, you know, permanent teacher placements and also, overall credentialing and training new teachers. Right? So it it should it should, work in their favor in the mid to long term.

And as we talked about this for special education service providers, with the weaker federal oversight, it'll be, you know, it'll be interesting for them to look out for how some of the states and districts are reacting to that and what are the what stance that they are taking. Overall, we don't think that that that there's a major risk to that particular segment, but they may just need to revisit some of their, operating models or, you know, where they're focusing on, depending on how some of this shakes out.

Moving on to higher education, the four themes that we are spending time on from a policy perspective are, you know, Pell grants and student loan reforms.

We again, we are not expecting that, there's gonna be a reduction in allocation of funding, to, you know, grants like the Pell Grant, but, there's already been news around, service loan forgiveness on, on the fact that that eligibility is gonna be more restricted. Overall, this might affect affordability, for the student negatively, which will probably impact the public institutions more. Some of the for profit and not for profit institutions, may be well positioned, to in fact capitalize on the setup, especially if the you know, based on what we have seen this particular government stands on, gainful employment act and and favor, towards private, is higher. And so they may be in a better position to innovate, launch more online and, you know, cost effective programs, and hence, benefit coming out of, this particular change, depending on how it evolves.

Research funding reductions, all of us have been, you know, tracking that.

It's gonna make some of the top tier institution less competitive if they are not able to substitute those trends.

I think there was a lot of, of course, wastage, perhaps in how some of the funding was being used. So we also anticipate that a lot of these, you know, institutions and universities are gonna become more effective in how they're using the research funding that's available to them. But, also, probably looking at other sources, right, like going to the, corporate sector, for example, and, establishing corporate partnerships. And so, you know, those any any institutions focusing on those areas could benefit, and could partner with some of the, you know, the research institutions to help them, think about their funding requirements.

Again, the DOE, dismantling, similar disruption as we talked about for k twelve, so I won't go into too much detail there. International student immigration, that's another segment that's, potentially going to be negatively impacted. Even if regulations don't change out there because of geopolitical tensions, we see, and and stricter, you know, Visa, processes, we do see the market in the short term, getting, slightly impacted.

But over the long term, there's very strong demand for high quality education, and US is, the largest, destination market.

So we we we do see, institutions innovate in where they recruit students from to ensure that they can get the right quality, students that can go through the rigor of, some of the, visa requirements, etcetera. But but that's another segment, at the short term, that's been seeing some impact, which, brings us to again, where do we see some who could benefit or lose in in this turn, transition. For profit colleges and online, programs are likely gonna, benefit coming out of, this situation because of all the reasons that we talked about.

Education service providers, that are helping institutions become more efficient operationally, you know, recruit better, improve their attention, or even reduce their costs. Right? So as you think about, back end operations, a lot of them, there'll be quite a bit of demand amongst institutions for such services because that's not core to them. They'll need to be careful, of course, because funding is gonna be constrained.

So picking the right partners to support and ensuring that their offering, the the value of their offering is quite clear to institutions. It's gonna be quite critical. But they, you know, there should be an increase in demand out there, for that particular segment. For standardized testing companies as, universities move away from, some of the test optional, kind of, initiatives, should see growth also.

For ERPSIS LMS providers, that's a very well penetrated market. They do help institutions, operate more efficiently.

In segments like online, there might be an opportunity. And at our learners, there might be an opportunity to innovate and create solutions for universities to target those segments better.

But low budgets also may mean that new initiatives, for example, you know, new version rollouts, etcetera, may, land flat with some institutions as they look to control their budgets.

And, you know, I know that some questions have been coming in, so thank you for sending those over. We'll we, you know, we'll definitely address those as we, approach the end of the presentation.

But that said, we wanted to move into the second agenda item for our presentation. I'm mindful of the time that we have, and and so I'm gonna hand it over to, Laura to take us through some of the themes and trends that we think are gonna be important and that will shape twenty twenty five.

Awesome. Thank you, Jiten.

So as we look to, twenty twenty five, really five themes, that we wanted to highlight, with with some nuance probably to be layered in based on some of the policy and regulatory changes that Jiten just highlighted.

But the first is really around AI. I think, in any sector, this is one of the hottest topics, and so we'll touch a bit on how we're seeing that play out in education right now.

The second is upskilling and reskilling.

As we talked a bit about in some of the m and a data, this is an area that has been active in terms of number of transactions, over the last five years or so. Not necessarily as large a transaction size, but we think there are, some interesting opportunities coming up there, and certainly some positive underlying sort of drivers of that market segment.

The third is the reemergence of higher education. And as we dig dig into that, it's both around, higher education providers themselves, but also, services and solutions that sell into that end market.

The fourth are some of the pockets within k twelve that we think will be, sort of, active. And then the fifth theme is around increasing demand for IT services, across the education landscape.

So we'll dig into those five, kinda one by one. And, you know, in the interest of time, we'll give you sort of the treetops view, of each of them, but, we'll certainly share some of the detail in the presentation that, gets sent out.

Wonderful. So really starting, on AI. Relative to some other industries, AI is a bit less penetrated, in the education sector to date.

Education made up around two percent of the estimated total spend on AI centric technologies and software in twenty twenty three, around three and a half billion dollars, into that end market.

A few reasons that we see sort of driving some of the, more limited adoption relative to other markets. One, a lack of technical, expertise, whether that's, you know, in terms of the educators who need to implement certain technologies, or the broader sort of technical staff supporting, schools and others in the ecosystem.

The second and third, which I think are quite critical.

The second around uncertainty and ROI. As with many things in education, certainly, there are kind of bottom line growth objectives and profitability objectives for companies operating in this space on the for profit side. But there's also a desire to increase learning outcomes, and that is hard to measure and time consuming to measure. And so really wanting to understand how AI is gonna impact learning outcomes.

The third piece then is around, sort of a lack of standardized policies and some, you know, education specific concerns around student safety, potential of bias, or, you know, lack of academic integrity in different AI solutions in the education space, and finally, kind of data privacy concerns.

So really wanting, some sort of leadership and cohesion around standardized policies that that folks can feel comfortable implementing some of these solutions.

When we look at where, AI technologies may have the most impact, and this is, you know, feedback from folks, directly in the market, sort of scale of one to ten where they see AI having the most impact.

A few themes to highlight on the left hand side, really.

One, some of the more routinized and content driven areas of the market are likely to have the most sort of AI related disruption. So testing and assessment, language learning, things that are very content driven and fairly standardized in their practice.

Once you get over to, the early years and k twelve in particular, areas that are more holistic in nature, require other types of guidance and supports for students, or where there's concerns about sort of digital and technology penetration in general given the age of the learner, is where folks, view AI as likely to have less of an impact over the longer term.

All that is to say, you know, in the, near term, we don't see the complete replacement of the teacher in the classroom coming in the next couple of years and more of it as a augmentation, of some of the solutions and the existing, systems in place. But, certainly, where you are in the ecosystem, will have a sort of meaningful impact on sort of the role of AI, in your world.

One thing we just wanted to to call on quickly is certainly as we think about the potential impact of AI, there's a lot to be said for how it can personalize, individualize, and support student learning. But there's certainly a lot that can also be done related to AI in terms of teacher, effectiveness and efficiency, as well as on the administrative side. So thinking about this both from the learner's perspective, but also in terms of the teacher and, administrator as well.

Second theme that we wanted to highlight here is around upskilling and reskilling.

Certainly, this is a broad waterfront. As we think about upskilling and reskilling, this is, you know, largely, the, skill development that folks need once they've entered the workforce or have completed their sort of formal education. And if you just think about the number of people that this is relevant for, the portion of their lives that this is relevant for, this is certainly a kind of broad waterfront, of the education space.

As we look to, you know, a lot of the, focus on what is needed in the economy, changes in labor needs, changes in workforce needs, certainly, I think, you know, one of the most commonly cited needs is that there are sort of skill gaps in the labor market, and you can't necessarily find the, you know, employees with the right skill set, for your company's needs or that folks are in roles that are likely to evolve or have been evolving due to the implementation of technology, and will need to sort of upscale in order to be, well positioned for the jobs of the future.

You know, around two thirds, of organizations in in the US cited kind of skill gaps in the labor market as one of the top barriers to their kind of continued transformation.

And they've highlighted, you know, that at least a third of, their kind of employees, would require, changes in their skill set to either maintain their current role, or to sort of re be redeployed to the roles that are likely to be growing in the future. So this is something that is, you know, across areas of the economy, is kind of top of mind concern, for employers.

As we think about what that means for investable opportunities, there are both sort of b to c, driven, upskilling and reskilling platforms as well as then more b to b, and sort of corporate training related platforms that, endeavor to train, and upskill employees.

But a few challenges that this sector has faced historically.

You know, one, I think, difficulty, measuring outcomes, relative to you know, for all of their flaws, some of the standardized test scores that you have in a k twelve, or other educational environment provide a, barometer for how folks are performing and what they're learning.

Whereas in some of these corporate training and upskilling and reskilling environments, it's much harder to sort of measure the outcomes and impact of these solutions.

In many of the, b to c driven solutions out there, there's sort of low retention and completion rates. So folks sign up, but they aren't necessarily actually making it through to the end of the programming where they would have learned that skill set or achieved the credential required, for a new role in the workforce.

And relatedly, you know, particularly on the b to c side, higher and growing customer acquisition costs as we see across, many, b to c businesses.

The last piece here is the same rapid changing of the skill set, that is impacting the employee is also impacting the companies that are trying to, provide and train on those skills. So there are certainly some themes of areas that, are likely gonna be in demand, into the future, but that continues to evolve. And so that content development cycle, is is quite short.

A few things that we tend to see as being more attractive, in this space, whether on the b to c or b to b side.

And, really, that is the tightness of the linkage to the employability or sort of standards within a particular industry.

So, oftentimes, there will be certain industries or certain providers that are more closely linked to, subsequent hiring, of those individuals, whether that is, you know, a teacher who gets a master's in education and therefore is guaranteed a higher rate of pay.

That is a tightly linked sort of guaranteed outcome if you, achieve that next level of of skill set.

There are also industries in which certain certifications are mandated or required, whether that is to enter the industry upfront or continuing education to ensure you are, staying on top of the latest regulations and protocols. And so whether that is, you know, accounting and finance and insurance or even sort of worker safety and other vocational trades, there are a number of industries, where upskilling and reskilling is essentially, required for continued progression in that industry.

And then the last piece here is certainly, in, many fields, having a corporate sponsored, training is a sort of deeper pocket to tap potentially than the, learner themselves, in recent years with, some sort of tighter budgets from the kind of macroeconomic trends, we certainly see compliance and technical training providers being ones that are, you know, areas that folks, companies are still going to spend on, whereas some of the leadership and soft skills training, can be a bit more subject to fluctuation based on kind of corporate budget year to year.

Aging forward here. Let's see if it'll follow my lead. Great.

So third theme then is around the reemergence of higher education. And I think one thing we wanna touch on just before we dive into this is really there's been, I think, a number of negative headlines over the last probably decade around questions or skepticism of higher education, the value that it creates, students pursuing alternative pathways.

And while there is some truth to those elements, we think there is really sort of solid underlying need and reason for higher education.

And for many students, it does create tremendous value. And so there is long term, kind of stability there.

As we think about higher education from an investment standpoint, really two types of investable assets, private for profit higher education institutions themselves, as well as the tech and service providers that sell into the higher education market.

On the sort of first bucket of those, you know, the, total enrollment in, higher education, both two year and four year, has had some declines in recent years, particularly related to COVID. And then as folks have seen sort of the rise of some of these alternative credentials, and digital solutions that don't necessarily require a more formal, degree. That being said, the most recent, enrollment numbers have seen a kind of positive uptick, and in particular, growth among, private for profit institutions in the last couple of years.

Certainly, over the last ten to fifteen years, there had been a kind of culling of the herd within the private for profit institutions as there was gainful employment and other regulations instituted, which I think pulled out a lot of the bad actors.

And now you have a set of schools, that are really oftentimes the ones performing the best are focused clearly on, you know, areas that will benefit students in the workforce. So as we look to, types of for profit colleges where we're seeing enrollment growth happen, oftentimes, it is aligned to growing areas of the workforce, whether that is, health care and allied health, IT and computer science, some of the skilled trades, etcetera.

Just in the interest of time on the, service provider side here, Jiten started speaking to this a bit, earlier, but really a few thematic areas, where we see, higher education institutions likely to need help, and invest, albeit budgets, may be, a constraint in the near term.

The first is really on sort of student marketing enrollment and life cycle support. Given some of the enrollment trends, given given the increasing competition, you know, you certainly, in institutions are looking to draw in as many students as possible, and ensure that they are maintaining engagement with those students throughout their enrollment and as alumni down the line. Schools are also looking to evolve their reach and their program offering, through, you know, continued engagement with online program managers.

A lot of the digital transition that's happened in higher education in recent years, also leads to the rise of, kind of different testing services and integrity needs, that happen when you're in a remote learning environment or in some of these other online offerings.

And then lastly, while this may be, dampened in the near term due to some of the, kind of visa changes, etcetera, higher education institutions in general are often interested in international students who are more likely to pay full freight, for attendance at that university. And, certainly, there is tremendous demand from the international students themselves to come to schools in the US. And so, ability to facilitate that, long term should be a a positive area.

In the interest of time, we'll, skip past a couple of the additional detailed pages here, and move on to our fourth theme.

And this is really around kind of k twelve.

Certainly, with, the, end of some of the ESSER funding, there's a bit more kind kind of change in activity in this space than we may see historically, but still ninety percent of k twelve funding is coming from the state and local level.

This is school that's, you know, required for students to to progress through. And so it's a fairly stable kind of end market within the broader education space.

The thematic areas that we see being of particular importance, coming from some of our recent research with k twelve administrators conducted at kind of the turn of the year are really around student, mental health and behavioral support as well as academic support and intervention.

So two themes that I think have been really heightened coming out of the pandemic.

Certainly, while this was not necessarily the concern going in, schools have seen, you know, major issues in terms of, lack of attendance, anxiety, mental health needs, feelings of isolation, etcetera, that came out of the pandemic. That coupled with some of the longer term kind of, increase in major, you know, school safety issues, has led to a real focus on kind of mental health and student safety and well-being.

Certainly, there's a range of types of solutions that support, schools in trying to support students in terms of their mental health and and school safety.

But as we hear directly from, school districts and administrators, some of the most commonly implemented ones are really around kind of monitoring and reporting tools, looking for, bullying, harassment, you know, concerns with individual students.

Other buckets are, you know, surveys and tools around school health, school climate, really understanding how students feel about the climate at the school more broadly.

And then certainly there are, you know, curricula, counseling services, etcetera, supports designed to directly increase student and teacher capacity on these dimensions.

The other key area is really around, academic intervention and support. And I think, you know, you've probably seen a lot of the headlines, related to recent test scores, but this is a sort of synthesis of the twenty twenty four, NAEP performance, which, came out, at the beginning of the year. And, you know, unfortunately, more, red downward arrows here in terms of trend line than you see green upward arrows. And so this is the trend from twenty twenty two to twenty four, and twenty twenty two was already down, materially relative to twenty nineteen and pre pandemic test scores. So, schools are not only struggling to make up for some of the learning loss that happened during COVID, but actually in in many instances, there's are still seeing declines.

Where you do see some growth, is actually with, within math and at the higher performing level, so at that seventy fifth and ninetieth percentile.

And that speaks to actually kind of widening, achievement gaps that we're seeing. So, both on this sort of hard data of how students are performing and on the feedback we got directly from k twelve administrators, academic support, and intervention is a a top priority.

How that actually plays out in the immediate term given some of the, budget changes in, in the next year, with the end of ESSER funding, will depend, you know, be impacted differently by segment. You know, core curriculum is likely to be something that folks are investing in, materially, at their sort of renewal cadence, regardless of of budget, but some of the more ancillary programs, that may have been implemented, with additional, COVID relief funds, have a bit of a risk, given some of those budget constraints. However, if you ask administrators directly, academic support is the area they are least likely, to cut back on.

Last piece here, and we'll go through this quickly so we can make sure we answer some of these questions, is really around IT services and education.

I think the major headline here is that there's been, you know, tremendous implementation of technology in both k twelve and higher ed over the last number of years.

At the same time, there isn't necessarily, the staff and skill set within those institutions to effectively manage, that digital and technical implementation and adoption.

So if you look at, you know, what k twelve folks are saying, you know, one of their top issues related to technology is a bit inability to hire the staff with the skills that they need.

All of this is leading to the kind of emergence and continued growth of managed IT service providers focused on, the education sector specifically.

And, you know, these organizations are really helping schools, districts, institutions, not only, implement effective and tailored solutions for the education space, but do so kind of more efficiently, and with a caliber, of skill set that they might not be able to, employ in house.

So with that, realize we we, move pretty quickly through a lot of content there, but wanna make sure, we take some time to kind of share some closing thoughts and and answer a few of these questions. So, Jiten, maybe I'll hand it back to you.

Thank you, Laura. I'm just trying to come off mute out here, but, the control would just not work. I mean and, you know, we will send this across to you as and the third team was really about, some of the interesting opportunities that you could explore. But, you know, we'll send this presentation out to you, and it's it's, in a more set of logos that you can go through.

But just sticking through thank you for sending, your questions through, and I'm trying to see how we could get through this the most, in in the most effective manner. There there are a couple of questions that have been asked about just the overall transactions that have happened, and and the role of, PE and corporate training, in this particular segment.

So as we go through, the thinking around that, I think the first question really is, like, why does why does corporate play such an important, role in the sector, and and what are the implications of p, going up, you know, the role of p going up in the sector is is that due to some inefficiencies. I think broadly speaking, firstly, when we think about, the corporate sector, in education, you know, there are more transactions that that attributes to and, in in overall volume numbers, and that's usually because education tends to be a very, very fragmented segment. Right? So whichever subsegment that you look at, education is at a stage where probably, you know, health care was at maybe ten, fifteen years ago. And so the markets were fairly, you know, fragmented.

And so we see a lot of activity in the sector that happens as more corporate led, as some of the bigger firms, they gain scale by, bringing on some of, the smaller providers, either acquiring them for the customers or their, business models, and and growing. And and that kind of brings them to a reasonable size and scale where we start seeing external investors, private equity investors, some of the and when we say private equity, we are kind of clubbing, at and looking at all investors and, you know, you also see some of the sovereign wealth funds, etcetera, that are interested in this particular space or infrastructure funds that are interested in this particular space.

And so as some of these assets gain scale, they become more relevant for private equity. And so that and and especially during downturns, we see, for private equity, especially if they can get high quality assets at a lower value, it's a fairly defensible sector. So we see the activity pickup, and that's probably the reason why we are seeing more PE, activity in recent years.

And and the question on corporate, I may have missed that a bit. It's a little bit more corporate training. Why is that so active in the m and a sector? And and that the answer to that is because of the, entire fragmentation, of that particular space.

The the there are very few players that have achieved and demonstrated significant scale, and a lot of the industry tends to be very mom and pop where different regions, different companies are being catered to by different providers, and there's definitely room for consolidation there.

So, those were, I think, a couple of questions that we had around the transactions themselves. That there's a great question that's come in about, what's the impact of, the current regulations and policies on demand for high school education?

Will families pursue, you know, other programs, non US based programs, for example, IB, or even international, schooling?

I think the general answer there is, that is you know, for most of the parents' education tends to be a one shot activity.

And so we we, in our experience, have not seen too many parents be too experimental with their children's education. They try they try and stick to, what has been, what has been demonstrated and what has been tried and proven. And so we do not expect the current policies to have a huge impact on the kind of education. So, you know, whether it's a core curriculum or US curriculum schools that, parents are going for. However, the in the US, there is there's always been a strong demand for education from immigrants and for many of those, parents.

They they they like, some of the international models of education too. So I think there is a, there's enough demand for, international programs like, you know, UK or IB, and we see and that's why we see some of those brands. They are looking towards the states to set up, new schools. And especially with, some of the voucher and asset funding, we'll see that segment grow, but I it does not necessarily mean that, there's gonna be, you know, a ton of parents that were going to US schools that are not gonna switch to, other curriculum. I think I think both, have enough of a, you know, opportunity to exist together.

Moving on to the next question, job readiness, programs of high schoolers and college goers.

I think that's definitely an, an interesting segment. And in fact, we had published a report last year which talked about alternative, routes to the job market for, students who didn't want to go through college.

And it also ties to, another question that's been asked around apprenticeship programs.

In general, we are, definitely bullish on some of those alternate alternate models, whether it is CTE in school or, you know, vocational education for, students, trade based education, you know, middle skills, training for, for, students, so that they can enter the job market better. There are definitely pockets of those segments that we like a lot, but in general, we like, those pockets when they are either have very strong support from the industry such that that certification has a meaning and a higher, job prospect slash, income earning prospect for the student that undergoes or takes those programs, and or there are very strong funding dynamics, whether it's public sector or, again, industry based dynamics. Right? So, we are bullish on on that segment. There there you know? But as as of today, as Laura has mentioned earlier, higher education is still the general route and pathway for a majority of the students.

But we do expect to see innovative models and ideas, and and, job readiness, for students that do not decide to go to college becoming more and more prevalent going forward, including apprenticeships.

In order to get European style apprenticeships, of course, in the market, that's the that that's one of the key challenges because, you know, you need to have strong support from, both the public sector and employers to enable, some of those. You know, it's a bipartisan topic for, in the US, and we expect policy to be favorable there.

So, you know, overall, we like, the apprenticeship model, and and we are hopeful that there'll be continued support, from from the, regulators, to enable that going forward.

Anurag, we are approaching right towards the end. There's also a question about, I'm gonna just ensure that we are answering some of these. There's, yeah, there there's also a question about, supplemental and tutoring, and and what makes us bullish on that. Just wanted to clarify that, you know, we are we are bullish on learning tools that help bridge the learning gap, but it's not necessarily, you know, all in tutoring and all the supplemental providers.

We and as as mentioning earlier in my discussion, we have seen some amount of pullback in our discussions, with some of the supplemental and school supply companies, over the last three months. So that, you know, as budgets, have tightened, that particular segment has seen a little bit of tightening. I think, out here, the overall objective was that anything that can, or or the overall objective of bringing up that team was that there is a huge learning loss that's happened in the market. And, most of the school district administrators, as you saw from the survey, are concerned about this particular, learning loss.

And, if there are options and services or products that can help bridge that learning, loss, that'll definitely still be on top of mind for, some of the educators. And and and, you know, I think that's, what we wanna do. Get out there, but not necessarily that, we are bullish on, tutoring.

Yeah. So I think there's another question around, please explain what about, you know, what's hap what's happening with ESAs.

So, you know, we the ESAs are related to basically the school of choice, concept. Right? And so there's definitely been a push towards allowing the parent to choose whether they want to send their children to, a public school or to make funding in some way available to them to choose to go to a private setting if they wanted to, whether it's it's a fully private or a sectarian school setting. And different states implementing it, in different ways. You know, there are states that have introduced the voucher system.

So a few of the other states are exploring the ESA model, and and and that's, that's to enable, basically, parents to choose the private setting. And, again, it's been implemented at a different level. So one is the tool that the states are using. The second, point out here is really around, how much of budget is available. So how many slots are available for parents to choose some of those settings.

The main point is that, the current government is very, bullish on allowing parents that choice and in favor of school of choice. So we should see more states that are aligned with that particular thought process to introduce, tools that enable parents to make those decisions, which will, you know, support some of the private school options that exist in the market.

I know we have run over time. I think we may have one or two more questions that we haven't been able to get through fully, but I'm respectful of everybody's time out here today too.

But, you know and we really appreciate everybody taking out the time for our discussion.

And, you know, this was the first time we have run this webinar here today, and I think we had a great turnout. So we would love to be able to get, you know, feedback from you guys over time, on how this, you know, how this presentation sat with you, if you would have liked to hear about some some other topics that we may have missed. So please feel free to mail Laura or me if you have any further clarifications or even if you want to take up some of these topics that we discussed in more detail. We will make sure that we send out the, presentation to you as mentioned early next week, and it should also be going live on our website soon. Thank you everyone for taking your time for our discussion today.