A sustained shift to digital…
For the reasons outlined above, corporate training and professional development have been arguably two of the most resilient sub-sectors throughout the pandemic. While one is operational, in encouraging competency within a job, the other is more strategic, by allowing individuals to excel beyond the status quo. We believe investment into both areas has proven robust potentially as a result of the advanced digital delivery pre-pandemic, and has piqued the interest of private equity funds, globally.
The potential for strong margins, increased need and, in some cases, professional licensure requirement mandated offerings (e.g. Healthcare training) has meant an influx of deal activity throughout 2020 – with examples such as Brentwood Associates recapitalization of MedBridge and SafetyCulture’s acquisition of EdApp. We believe these factors have also resulted in an aggressive interest from private equity funds (PE) for companies operating digitally within the space, driven by the markets ‘Covid-positive’ status as a software-based industry – a trend we expect to continue in 2021.
Driven by the cost benefits and increased accessibility for workforces, digital corporate training was a core element of many Western businesses pre-pandemic. In Germany, Japan and India, however, the underdevelopment of digital training was evident at the start of the pandemic. Cost arbitrage prospects for German PEs, and an increased demand for IT literacy has since driven deal activity in these markets via the adoption of third-party platforms. For example, Udemy, the largest global marketplace for learning and teaching online, received a $50m investment from one of Japan’s top education providers, Benesse Holdings Inc, creating a valuation of $2 bn. Given the adoption and investment the pandemic has driven thus far, we anticipate the efficiencies recognised will continue to drive further consolidation in the space.
By contrast, the pandemic has catalysed new learning opportunities for those outside of a corporate framework. For workers who have lost jobs and are looking to upskill, online education has proven a fundamental resource. The corporate e-learning market could increase by $38.09bn between 2020 and 2024, and looks set to be supported by governments and investors alike.
In Japan, for example, Gakken, one of the country’s leading education operators, has recently expanded its mid-term business plan (2021-2023) to include a focus on adult learning - an indication that strategic growth/investment decisions are focused on this space. Similarly, the Indian Government’s new National Education Policy (2020) is encouraging the digitalisation of university courses, by allowing top foreign universities to deliver online courses across India and also by enabling post-secondary organisations to offer courses digitally. In turn, we believe this has opened M&A and partnership opportunities for e-learning companies, who are able to partner with these universities to host the online courses on their established digital platforms.
Just like corporate training, we believe that PE and VC interest in professional development platforms have increased – driven by efficient cost models, Covid-proof status and increased demand from the pandemic employment fall-out. In India, there has been a positive market response to this. For example, Eruditus - an organisation partnering with top-tier universities across the globe to bring business and professional education to a global audience - has capitalised on this sustained adoption of digital learning and development, with a recent Series D fundraising of $113m - suggesting strong returns in the space are anticipated.
Transactions such as this enable companies to create career-ready courses to meet the skills required of the global workforce post-pandemic. In our view, platforms offering digital learning capabilities will continue to retain their status as a strong asset class in 2021, as a result of the maintained adoption.
A shift in ‘training itself’
The pandemic has catalysed not just the platforms training is being delivered on, but the nature of ‘training’ itself. For example, competency-based education (CBE) has, in our view, become increasingly popular, driven by the labour markets shifting focus to skills and continual learning vs one-off degrees. Equally, fast-moving curriculums updated real-time have also created a need for digital.
This has been enhanced by the pandemic, with businesses making cut-backs only able to hire those with up-to-date essential skills, knowledge and abilities. According to a 2020 TechNavio study, a widening skills gap between employers needs and the skills that college graduates obtain is expected to drive a $1.18bn increase in the higher education credentialing market by 2024. Several establishments are working to meet this demand, for example Brandman University has excelled in aligning CBE with workforce needs by focusing in particular fields such as business and information technology.
Driven by lower prices, shorter time to completion, employer demands and increased learning flexibility we anticipate that the delivery of these digital CBE courses will drive M&A opportunities in the space.
Outlook for 2021
There is still untapped potential for digital corporate training and professional development. Government support and ‘training funds’ – designed to boost economies and reduce unemployment - are expected to catalyse the digitalisation of the space. In that regard we expect PE interest and M&A activity in the market to remain strong.
Equally, we expect the digital transformation of training to lead to a wave of consolidations and a reshaping of certain sectors, including Tech & Software, Media & Telecom, Consumer, Leisure & Retail, as businesses continue to learn to deliver their services online as a longer-term solution.
High quality content is now fundamental for any business looking to enter the market, and can act as a barrier to entry for newcomers. Equally a matured process and sophisticated technology is seen as essential for superior learning outcomes. Ultimately, these high standards are an effort to rehash the misconception of e-learning as second in quality to face-to-face learning; the pandemic has already proven this to some respect, through the success of strong user-friendly online platforms.
Investors should look out for:
- Government-driven initiatives supporting digitalisation of training & development
- Opportunities in the delivery of credential-based education (CBE)
- M&A opportunities in the digital delivery of mandated corporate training e.g. in Healthcare and Education
- Investment opportunities with digital content creation agencies servicing the online learning environment
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