Ellucian and the Wave of EdTech Buyouts

Author

Phil Hill
December 12, 2019

While Instructure’s agreement to be acquired has generated the most interest recently, that company is not alone in having either private equity firms or larger technology companies looking to buy them out. Recently we’ve had a wave of actual and potential buy-outs in a consolidating market trend. Instructure, Civitas, Knewton, Pearson’s K-12 Courseware business, Trilogy, Parchment, Schoology. Berkerey Noyes tracks the M&A markets for education, and their recent report shows the trends of education-related activity. 2017 was the peak in value, with Frontline Education, Capella University, and EAB joining several other large companies. But the number of deals continues to rise.

M&A activity in education from 2016 - 2019. Total deal value peaked in 2017 at $10 billion, but the number of deals is continuing to grow.

Source: Berkerey Noyes newsletter

The biggest planned acquisition, and the largest one based on expected value, is Ellucian, which sells CRM, Financials, and HR systems as well as Student Information Systems (SIS).

To a large degree, the SIS market and associated systems are seen as outdated, yesterday’s news. Despite their reputations, SISs matter. A lot. There is a broad movement in higher ed to adapt to changing student demographics with new needs. The ability to start terms more than two or three times per year, the ability to support competency-based education programs, the ability to support certificate programs and open enrollment programs with non-matriculated students. I have seen outdated, inflexible student systems prevent schools from implementing initiatives that serve these needs, or at least determine the actual implementation details of those programs. Even for traditional programs, there is no other system that touches almost every campus stakeholder in the same way as the SIS.

We noted in our EDUCAUSE coverage this year that there was increased presence by companies offering SIS and related systems.

One theme that emerged as soon as one entered the exhibit hall was the (Re)emergence of Big Tech. Attending EDUCAUSE a decade ago, it was difficult to not view technology as primary by large companies selling IT infrastructure and ERPs (student information systems in particular). The marketing spend on ERP has gone down in the past five years or so, but this year ERP is back – big booths for traditional Oracle, Ellucian, Jenzabar suppliers as well as newer ones like WorkDay, Unit4, and Unifyed. These booths were mostly clustered at the entrance, and the level of spending on the booths and the general interest were markedly greater than previous years. Add to this the increased presence of Big Tech such as Amazon, Microsoft, and Google. And the mood of these companies seemed to be more positive. As we heard at Jenzabar, they think schools are not taking transformation seriously and want to re-engineer their business processes.

What has happened is that Ellucian is up for sale. From private equity to private equity, again, as reported by PE Hub. According to PE Hub’s sources, Ellucian generates approximately $300 million in Ebitda (corporate earnings) and could generate a company value of up to $5 billion.

Ellucian was created in 2012 when H&F [Hellman & Friedman] acquired SunGard’s higher education division through its portfolio company Datatel. JMI and H&F acquired Datatel from Thoma Bravo [Instructure’s acquirer] in 2009 for $570 million, according to an announcement at the time. A few years later, Datatel made an $1.8 billion acquisition of SunGard’s higher education business, an SEC filing disclosed.

In 2015 Ellucian was sold from private equity to private equity for $3.5 billion.

The ERP market in education is different than the LMS market, as it is characterized as stable and generating cash compared to the growth of the LMS, at least for Instructure.

Our partners at LISTedTECH have shared data showing Ellucian’s long-term market decline which has more recently improved to a plateau (or valley) starting in 2014, but note how the company is still generating more in earnings than Instructure generates in gross revenue.

Ellucian's North American market share for SIS. With their peak of 59% in 2000, the company dropped to 41% by 2014 and remains at that level today.

Where are those customers going? In the following chart also from LISTedTECH, we see that the primary beneficiaries of Ellucian migrations (for Banner, Colleague and PowerCampus product lines) are Oracle / Peoplesoft and Jenzabar.

Consider Ellucian to be the latest company that either has been sold or is up for sale in a consolidating EdTech market. There is a broad trend at play here, and it is quite different from the venture capital wave of earlier years, where most investment was driven by growth potential. EdTech is in a new era.