The internet and digital technology are changing the way people learn. A global market opportunity no longer confined to the classroom, technology has the potential to transform everyone into life-long learners. New entrants continue to offer innovative products, while the incumbents are growing, consolidating or disappearing. Here we discuss four potential areas for investors to watch.
1. EdTech start-ups: Earning gold stars
New technology and growing demand for quality, flexible learning means more start-ups are beginning to challenge traditional education providers, with most EdTech unicorns in the US, China and India.
Source: Barclays Research, HolonIQ - January 2019
EdTech start-ups: from VC to IPO
Attracting Venture Capital Investment: There were more than 1,000 education-related transactions in 2018, attracting $8.2bn of venture capital, almost double 2017. In 2018, there were a total of 27 deals with each valued at more than $50m and accounting for nearly half of all VC investments.
VC investment in global education nearly doubled in 2018...
Source: HolonIQ
Increasing M&A activity
With more than 25,000 EdTech start-ups in the market, consolidation is bound to follow, and we expect the number (and size) of mergers and acquisitions to grow substantially.
Preparing to go public
As EdTech start-ups mature and gain scale, there will be more preparing to list on the public stock exchanges, creating more opportunities to invest.
2. Listed EdTech specialists: The top of the class
There are more than 250 listed education companies globally, worth a combined $18bn. While only a minority specialises in EdTech, this is changing fast.
IPOs on a high: An all-time record, more than 30 companies have listed in the last 2 years – more than one a month. And the pipeline for the next 12 months looks healthy too.
No. of global education IPOs over time
Source: HolonIQ
Appetite for more
The growth in IPOs indicates a growing appetite for listed EdTech specialists, and several unicorns have explicitly expressed their desire to go public in the near future.
11 of the 19 education IPOs in 2018 were Chinese companies listing in the US or Hong Kong.Source: HolonIQ
3. Traditional education providers: Playing catch-up
Many traditional education providers have strong reputations and brand presence but are lagging behind technologically. Many are adapting through digitalisation programmes or entering into mergers and joint ventures to gain exposure to EdTech.
Types of traditional providers
Content and publishing
Challenged by new business models and changes in government spending and policies, traditional providers and publishers of textbooks and educational content are under pressure to consolidate and improve their digital offerings.
Higher education⁄universities
Technological innovation in higher education include applying artificial intelligence to improve learning, and many universities are now using AI in their admission processes.
4. Tech giants: Edging into education
Large technology companies have traditionally focused on providing schools, colleges and universities with hardware and enterprise software. Now the emphasis has shifted to immersive technologies, such as virtual reality and classroom management capabilities.
Strategic focus: customer loyalty
The strategic value of the tech giants being in education has not changed: they are less interested in generating revenue (at the group level this would be negligible), yet keen to become household names in the classroom to achieve lifetime brand loyalty with their next generation of customers.
Regional differences
Rather than focus on schools, Asia’s tech behemoths have been actively acquiring or investing in B2C EdTech start-ups in the non-accredited space (after-school, language learning).
Future opportunities
As consumer interest in education and the demand for EdTech grows, the tech giants could develop their own education content or enter the B2C market. They could also target adults and lifelong learning.
Our view
EdTech offers expanded potential for investors interested in the education sector. Advanced technologies such as artificial intelligence and virtual reality are bound to change the educational landscape beyond recognition in the coming decades. Combined with the increased presence of tech giants in the sector, many EdTech start-ups and specialists, as well as tech-savvy traditional providers, are likely to respond to the changing needs of educators, learners and adults requiring new skills.
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