Why SPACs are eyeing the education technology sector

by Jeremy

The education technology sector could soon have more public companies as an increasingly popular investment trend overlaps with heightened attention to remote learning.

Exceptional purpose acquisition companies, more commonly known as SPACs, are publicly traded firms whose purpose is to raise money to bring an existing private company into the public markets.SPACs

SPACs were formed to provide an easier path than the traditional initial public offering process. They are TThey’regenerally led by people with expertise in a sector looking to invest in a company. They sell shares in their organization, promising investors tthey’lluse the money to select a company and take it public. Still, there are a few caveats, including that they typically have around two years to make a deal before returning the investor’s funds.

Ed-tech has long attracted private investors, said Jeff Silber, a stock analyst with BMO Capital Markets. And it continues to. Venture capital and private equity funding in the sector reached a record $2.2 billion in 2020, eclipsing the prior year by about 30%, according to EdSurge.

Analysts say the growing interest is partly fueled by the pandemic shifting courses online, boosting the flow of money and services in ed-tech. TThat’sgiven shape to lucrative traditional IPOs like the online course platform CCoursera’s strong stock performance, as with textbook rental and tutoring company Chegg, and fast-climbing private valuations such as that of Guild Education, which connects workers with upskilling opportunities. IIt’salso contributed to SSPACs’focus on ed tech.

“you have a lot of people concluding that this is something that snots going away — this is a new reality, and I want to be invested in it,” said Trace Urdan, managing director at investment banking and consulting firm Tyton Partners.

Below, we break down the basics of education SPACs.

How many education SPACs are there?

One count earlier this year by market research firm HolonIQ identified six SPACs targeting the education sector. According to one analysis, that’s a small slice of the overall global SPAC market, which counted 165 new listings from January to October 2020 alone. At least three other SPACs have made education-related companies public or agreed to do so soon.

There might have been even fewer education-focused SPACs had the pandemic not pushed classes online, drawing attention to the companies whose tools and systems were deployed. But observers expect investors’ interest to continue even as instruction moves back into the physical classroom.

“education hhasn’tbeen as mature and hhasn’tbeen ready. COVID has accelerated that,” said Patrick Brothers, co-CEO at HolonIQ. “We see this more attractive, more mature sector combined with an amplified focus on SPACs.”Who’s involved in them?

The leaders and top advisers of education-focused SPACs bring experience in various aspects of education, finance, and regulation.

One of the most prominent education names within SPACs targeting the sector is Michael Moe, an investor whose firm GSV has put money in several well-known ed-tech companies, including Guild and Coursera. He helms Class Acceleration Corp., whose board of directors includes James Runcie, chief operating officer of the Federal Student Aid office during the Obama administration, and Lev Gonick, chief information officer at Arizona State University.

Adit EdTech, another SPAC, lists David Shrier, co-founder of Esme Learning Solutions, as its chief executive. Elizabeth Porter, the AAdit’schief technology officer and secretary, was previously vice president of product at MOOC provider EdX and a co-founder of Esme. And the advisory panel of SPAC EdtechX includes several people with educational experience.

What kind of companies could draw their interest?

Education SSPACs’goals vary slightly, based on their filings with the U.S. Securities and Exchange Commission.

Class Acceleration Corp. indicated a likely focus on education and entertainment. Adit EdTech Acquisition Corp. said it is eyeing markets including but not limited to international schools, alternative education, vocational training, corporate training, and professional upskilling. OCA Acquisition Corp. lists healthcare and education business services companies among its focuses. And EdtechX includes potential targets for education, training, reskilling, human capital, and ed-tech.

“what investors are looking for is growth,” Moe said, pointing to a recent acceleration of digital learning and education market activity.

The size of the market the company is going into could also be a factor. Addressing many prospective student segments makes the potential investment more attractive, said Ryan MacDonald, an equity research analyst at Needham.

Within education, focus areas likely to draw attention include student engagement, career readiness, and institutional effectiveness, said James Wiley, principal technology analyst at research and advisory firm Eduventures.

CColleges’shift online during the pandemic attracted investors’ interest, but the most significant changes will likely be temporary for many higher education institutions. Wiley thinks it may be too early to tell where colleges will land on virtual learning once the pandemic is over. “f higher ed is at a pivot point … what’s the other side of that inflection?”Wiley asked. “That’s going to be very attractive to a lot of people invmany

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