2015 M&A Outlook in the Professional Training Market
There is no sign that the broader U.S. mergers and acquisitions (M&A) market, or the leveraged loan market supporting it, is cooling. Training should be no exception, as fundamentals for these businesses (e.g., number of students, sessions, credits issued, average price per seat/student, etc.) continue to be strong. U.S. corporate training budgets have been up 12 to 15 percent annually over the last several years; 2014 growth was actually the highest growth rate in seven years. Additionally, the Bureau of Labor Statistics notes that underlying workforce demand in selected professional skill categories such as computer science, life sciences, mathematics, physical sciences, and engineering is growing at above-average rates.
Training providers’ business models are attractive to investors—they’re typically recurring, light in assets, and benefit from favorable industry dynamics (e.g., large, fragmented addressable markets, continuing skill gaps, etc.). Private equity investors who fundamentally like the education industry but shy away from segments with heavy regulatory oversight such as traditional higher education have flocked to the professional market.
Larger Deals, Higher Multiples
We believe several recently announced deals indicate continuing appetite at the upper end of the market. Global Knowledge, one of the largest global providers of IT and business skills training, educating more than 200,000 professionals annually, recently was sold to Rhône Capital, a global private equity firm (Baird advised the seller on this transaction). Similarly, Bertelsmann reportedly paid in excess of $500 million for Relias Learning, which provides technology-based training and skills assurance solutions to health-care professionals. In addition to the strong buyer appetite for larger, true platform assets, high-quality training businesses of almost any size are getting a “scarcity” premium. For example, John Wiley & Sons recently acquired CrossKnowledge for what reportedly was a value in excess of 19 times EBITDA.
HR Suite Convergence
The array of Human Resource services—solutions ranging from HRO and staffing to assessment and job boards—historically has been siloed. Linkages between finding and onboarding candidates, assessing the skill gaps of existing staff, and providing “prescriptive” training to address workers’ identified needs tend to be limited. As the skills gap persists and the cost of recruiting talent remains high (ranging from an average of $3,500 to well over $10,000, according to Bersin & Associates), we expect convergence of professional training with the HR suite. Recent studies suggest employers increasingly are concluding that “upskilling” existing internal resources is more efficient and effective than external hiring. As more companies conduct this “make vs. buy” evaluation, we expect increased M&A activity from the leading HR players looking to extend their capabilities into a more comprehensive employee lifecycle offering.
Hot Spots Are Health Care and B2C Models
We foresee certain verticals within the corporate training landscape to be especially active in the coming year. Health care leads the list. In addition to the Relias transaction, several Continuing Medical Education (CME) businesses including Oakstone Publishing, Gannett Healthcare, and Spear Dental recently sold and other healthcare-related training assets such as Health & Safety Institute (HSI) and CareerStep are rumored to be on the market. Health care is particularly active, given the continued strong employment outlook for allied health professionals, and the ever-changing technical and procedural requirements of the job, which necessitate ongoing skills development and knowledge assurance.
Though it’s more common in skill acquisition areas (and more difficult in mandated CE/compliance-driven segments with standardized content), we expect a continued rise in models such as Pluralsight that curate content from “experts,” as well as training marketplaces such as Wyzant, Takelessons, and Skilio. These platforms enable authors and subject matter experts to disseminate content through individual transactions and “all-you-can-eat” annual subscriptions.
Capital increasingly is flowing toward Business-to-Consumer (B2C) training models, where content is marketed directly to individual learners vs. corporate clients. Craftsy, which offers interactive online video classes on cooking and crafting, raised more than $58 million. Lynda.com, a consumer-focused provider of how-to videos focused on technology and digital media skills, raised $103 million in growth equity. In January, CIP Capital added scale to its consumer-focused online driver education portfolio company, I Drive Safely, by acquiring DriversEd.com. We expect continued momentum as acquirers seek out companies in this category, believing these businesses can dramatically scale through direct marketing investment and enhancement.
Leadership development and succession management also will be prominent in 2015. Employers consistently cite not having a leadership pipeline as their workforce shifts from Baby Boomers to younger workers as a major challenge.
Professional training continues to shift to mobile devices, in keeping with broader trends. More deal activity is anticipated around business models that facilitate multi-channel, multi-modality learning—which is really about being customer-centric and offering learners alternatives.
More Strategic Buyer Activity
We expect accelerating strategic buyer activity similar to 2014, which had meaningful moves by Bertlelsmann (Relias), Wiley (CrossKnowledge), and Xerox (acquiring Intrepid Learning’s outsourcing and professional services business to bolster its own Learning Services unit). Select higher education players such as Apollo Education, DeVry, and Kaplan will be increasingly active in corporate training. For example, in December, Apollo, owner of the University of Phoenix, formed Apollo Education Ventures, with a mandate to pursue minority investments in professional development and related human capital sectors.
Europe Will Be Active
Outside North America, Europe has been the most active international M&A market for training businesses. In 2015, our European outlook remains bullish. Beyond consolidation within European countries, we anticipate strong interest from U.S. strategics to pursue European acquisitions. We expect many attractive businesses with high market share and niche content offerings to come to market in the near term. Also, European sponsors are under increasing pressure to deploy capital with more than $120 billion of dry powder.
There is a “known” deal pipeline of more than 15 training M&A transactions (largely comprising financial sponsor-owned assets we expect to seek liquidity over the next 12 to 18 months). These deals are geographically concentrated in the United Kingdom (51 percent), followed by Nordic (13 percent), France (11 percent), and DACH (11 percent) regions.
These trends, in concert with the continued recovery in the macroeconomy, bode well for an active deal environment for 2015.
Andrew Snow is a managing director and Daniel Alfe is a director at Robert W. Baird & Co. They lead its education and training banking practice.