6 min read · Jul 10, 2017
Over recent decades, major shifts in the public education marketplace have quietly taken place. Among the shifts are nationalization that has led to the opportunity for smaller regional education service providers to become true national players, the advent of the use of big data in education for continuous improvement efforts, digital content and curricula for students, new forms of student assessments, and changes in the ways that products and services are bought by schools and school districts. These changes, when taken together, point to the need for private equity and venture capital managers to reexamine the K–12 educational marketplace as one that is ripe for investment.
What is the size of the K–12 education marketplace?
In short, the K–12 marketplace is huge. In the United States alone, K–12 education is a $634 billion market, according to the Department of Education. This translates to more than $12,500 per K–12 student, with $11,222 on average allocated to salaries, employee benefits, purchased services, and supplies. A significant share of this money is earmarked for services provided by education-focused vendors.
What types of companies fall in the K–12 education marketplace?
When managers and investors hear about the K–12 market, their minds often go to independent charter school management companies, virtual school businesses, or other private and for-profit educational providers. While there are many vendors in this area of the marketplace, and it is likely to see some growth in the future, businesses that serve this facet of the market face the lion’s share of the politics that are brought to bear for or against charter and voucher schools.
The companies that we are most excited about in the education space and the ones that we find most compelling are the local and regional service providers that are now dramatically expanding in this new era of public education. This includes businesses that serve all the educational market’s organizations such as data providers, software vendors and the larger genre of EdTech, professional development providers, national and soon-to-be-national educational consultancies, and curricula and content providers.
Why should the K–12 education marketplace be considered by private equity firms?
If you have not been in a K–12 classroom lately, you will be surprised to see how schools have changed in the last twenty or so years.
Those of us who remember sneaking out of our last hour of study hall in senior year may be surprised to learn that modern schools are now completely secure. In the aftermath of school shootings and other incidents of violence, new best practices in school security have resulted in secured entrances, cameras, and sophisticated communication devices as well as consultants who provide ongoing assistance to schools and districts.
The inside of the school building has also changed significantly. New schools are no longer designed to include computer labs, as it is less expensive and more educationally sound for students to be issued their own computers or digital devices. Similarly, school libraries and the books that they once housed have given way to digital books and resources.
The classroom itself has changed as well. Paper and hard copies have been replaced by computers, digital devices, and all manner of digital content. Instead of simple wooden desks, many students now sit at specialized tables with outlets for plugging in their digital tools.
The advent of the internet in classrooms and the availability of quality-streamed content has likewise changed the role of the teacher. A teacher today no longer views himself or herself as a “sage on a stage,” the sole provider of educational content, but as a facilitator of knowledge who helps students find and utilize educational resources.
The passage of No Child Left Behind in 2001 ushered in a new era of high-stakes testing and data reporting. While requirements at the federal level have become more lenient, over the last two decades, school districts have become similar to businesses in their use of data aggregation and assessment for the purposes of improvement and quality assurance. School districts are increasingly adopting corporate titles for newly created positions in education, including Chief Technology Officer and Chief Information Officer.
Moving toward a national system: Of all the changes in education over the years, the one most relevant to investors is the increased nationalization of schools.
Historically, education in the US has been a decidedly state-level affair. In the last century, seventh graders in a social studies class in Florida could have been covering entirely different content than their peers in a class by the same name in Oregon. Those who moved schools across the country decades ago can attest to this.
While there is no national curriculum — even the now-maligned Common Core was, in fact, a state-level rather than a federal issue — there has been a significant move toward states adopting the same types of curricula, learning content, software, and academic standards.
States moving independently of each other but in the same direction is essentially nationalization by another name. For students, this means that moving across state lines may no longer result in changing curriculum mid-year.
For education vendors and private equity firms, the nationalization of education has created opportunities to make investments and scale in ways that were impossible just a few years ago.
Seeking opportunities in the K–12 marketplace
While private charter and voucher school operators tend to get a lot of ink in the education marketplace, investors are not always keen to put their money into them.
The advent of new voucher policies at the state level presents a model of education that is cheap and easy, but not necessarily suited to the needs of all schools or all students. While education is and has always been a hot political area, the politics of charters and voucher schools burn especially bright, adding a great deal of unnecessary risk.
The best investment opportunities are those that serve all students, whether they be education-focused businesses that have grown from small local players into regional players or regional players that are competing in a national or international market.
While more deals have been done in recent years at the level of higher education and in adult learning spaces, nationalization will create new, and more sound, opportunities for investors in K–12 education.
As we consider education from a long-term perspective, it is easy to see that education is shifting. What we know as “school” and, to an even greater degree, what it means to be “educated” are changing too.
Fortunately, the established players in the current market will shift and change as well, creating new and exciting opportunities for investors.
But haven’t we been to this rodeo before?
In 2011 and 2012, a round of investments and subsequent series of articles in the investment media focused on the educational marketplace. And while those investments and many such at that time seem to have worked well for the various firms that have made them, subsequent media attention focused on changes in state and federal level policies and budgets as well as political wrangling. These items shifted investors’ opinions and led to a cooling of the market. But savvy investors in the education sector are finding opportunities anew.
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Forward Advisors specializes in identifying and analyzing issues facing the constantly evolving K–12 educational marketplace and, more importantly, the expanding number of businesses serving this growing market.
We help private equity, venture capital, and institutional investors get up to speed on the swiftly changing opportunities and pitfalls of the K-12 market. We do this by identifying and understanding areas of investment within the context of innovative and disruptive changes in state and national educational policies, along with constantly shifting political considerations at the state, federal and local levels. This affects not only how we educate students and evaluate their progress, but also how we evaluate the performance of teachers, administrators, and other educational professionals. Most importantly, it enables us to closely evaluate how educational products and services are purchased.
Do you have questions about investing in the K–12 educational marketplace? Contact us.
Joe Donovan is the principal of Forward Advisors, a national private equity consulting firm that specializes in the K-12 educational marketplace. Joe can be reached at joe.donovan@forward-advisors.com or at (800) 393–5283.
