education services reportcontent.rwbaird.com/rwb/sectors/pdf/technologyservices/education...overview...

M&A Market Analysis and Capital Markets Update September 2015

Education Services Report Overview of Sector Trends, Capital Raising and M&A Activity Education Services Investment Banking European Investment Banking Asia Investment Banking Andrew Snow Managing Director [email protected] +1.312.609.4972

David Silver Managing Director Head of European Investment Banking [email protected] +44.207.667.8216

Anthony Siu Managing Director Head of Asia Investment Banking [email protected] +86.21.6182.0981

Peter Kies Managing Director Head of Technology & Services [email protected] +1.414.765.7262

Jonathan J. Harrison Managing Director European Investment Banking [email protected] +44.207.667.8414

Satoshi Matsumoto Managing Director Director of Japan M&A [email protected] +1.646.557.3201

Dan Alfe Director [email protected] +1.312.609.4922

Martin Luen Director [email protected] +44.207.667.8381

In This Issue Page

Disclaimers and Other Disclosures on page 28

• Quarterly Report Overview ................................................................................. 1

• Macroeconomic Commentary ............................................................................. 2

• Policy News ........................................................................................................ 3

• Sub-Sector Commentary and Company News ..................................................... 5

• Baird’s Equity Research Commentary ............................................................... 10

• Share Prices and Valuation .............................................................................. 12

• Select Relevant Operating / Valuation Metrics ................................................. 13

• Equity Offering Market Overview ..................................................................... 14

• Education Services Equity Activity ................................................................... 15

• Education Services M&A Activity ...................................................................... 16

• Venture News ................................................................................................... 18

• Company Spotlight ........................................................................................... 19

• Baird’s Education Services Expertise ................................................................ 21

• Upcoming Education Industry Events ............................................................... 22

• Education Current Market Multiples ................................................................. 24

• Education Current Margins and Select Other Ratios ......................................... 26

• Baird’s Education Services Team ...................................................................... 27

• Disclaimers and Other Disclosures ................................................................... 28

• Glossary of Terms & Other Important Information .......................................... 29 The following report has been prepared by the Global Investment Banking Department of Robert W. Baird & Co. This report is an overview and analysis of consolidation trends and is not intended to provide investment recommendations on any specific industry or company. A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed at http://www.rwbaird.com/researchdisclosure. You can also call 1-800-792-2473 or write: Robert W. Baird & Co., Equity Research, 24th Floor, 777 E. Wisconsin Avenue, Milwaukee, WI 53202.

Quarterly Report Overview

Robert W. Baird & Co. 1

The Education Services report, created by Baird’s Global Investment Banking Department, highlights capital markets trends and events that impact companies within these sectors. Detailed below are the report’s five areas of focus. Within each group, companies are represented from around the globe; however, the majority of publicly-listed education providers are concentrated in the U.S., Brazil and China. The statistics at the right of each group represent the current mean for the group, and the arrows indicate movement up or down from last quarter.

Benesse Holdings

Bright Horizon Family Solutions Bright Path Early Learning Educomp K12, Inc.

New Oriental Education & Technology Group Nord Anglia Scholastic Xueda Education Group

Quarterly Change in

Stock Price

(1.7%)

American Public Education Anhanguera Educacional Participacoes Apollo Group Bridgepoint Education Capella Education Career Education DeVry Education Management Corporation Estácio Participações

Grand Canyon Education ITT Educational Services Lincoln Educational Services Corporation National American University Navitas Limited Strayer Education Universal Technical Institute

Quarterly Change in

Stock Price

(25.6%)

China Distance Education Holdings Franklin Covey GP Strategies

Learning Tree International Vocation Limited

Quarterly Change in

Stock Price

(27.0%)

2U Chegg Quinstreet Rosetta Stone

Smart Technologies Sonic Foundry Tribal Group

Quarterly Change in

Stock Price

(8.0%)

Houghton Mifflin Informa John Wiley & Sons

Pearson Wilmington Group Wolters Kluwer

Quarterly Change in

Stock Price

(4.9%)

_____________________ Source: Capital IQ. As of August 31, 2015. Please see glossary on page 29 for definitions and other important information.

Primary & Secondary Education

111.4x 10.5x

May 31 August 31

LTM EBITDA Multiple

Higher Education

26.2x

4.7x

May 31 August 31

9.7x8.0x

May 31 August 31

Education Technology

4 13.1x 12.5x

May 31 August 31

Diversified Education Services & Publishing

5 13.9x 13.3x

May 31 August 31

Macroeconomic Commentary


OECD Real GDP Growth rate compared to previous quarter, seasonally adjusted

_____________________ Source: OECD.

Consumer Confidence Percent change from previous year

_____________________ Source: St. Louis Federal Reserve, Confederacao Nacional da Industria, National Bureau of Statistics of China, GFK NOP (U.K.) and The Conference Board.

Unemployment Rates Seasonally adjusted

_____________________ Source: U.K. Office for National Statistics, Deutsche Bundesbank, Ministry of Human Resources and Social Security of the PRC, IBGE and Bureau of Labor Statistics.

Economic Expectations

Global growth is projected at 3.3 percent in 2015, marginally lower than in 2014, with a gradual pickup in advanced economies and a slowdown in developing economies. In 2016, growth is expected to strengthen to 3.8 percent. In emerging market economies, the continued growth slowdown reflects several factors including lower commodity prices and tighter external financial conditions, rebalancing in China and economic distress related to geopolitical factors. A rebound in activity in a number of distressed economies is expected to advance growth in 2016.

Market Notes

• Advanced Economies – Growth in advanced economies is projected to increase from 1.8 percent in 2014 to 2.1 percent in 2015 and 2.4 percent in 2016. The underlying drivers for acceleration in consumption and investment in the U.S. - wage growth, labor market conditions, easy financial conditions, lower fuel prices, and a strengthening housing market - remain intact

• Euro zone – Economic recovery in the euro area seems broadly on track, with a generally robust recovery in domestic demand and inflation beginning to increase.

• Japan – Growth in the first quarter of 2015 was stronger than expected, supported by rising capital investment. However, consumption remains sluggish and more than half of quarterly growth stemmed from changes in inventories.

• Emerging market and developing economies – In 2016, growth in emerging market and developing economies is expected to pick up to 4.7 percent, largely on account of the projected improvement in economic conditions in a number of distressed economies, including Russia and some economies in the Middle East and North Africa.

_____________________ Note: Robert W. Baird & Co. Market Commentary.

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2011 2012 2013 2014 2015

(19.2%)

2.7% 6.0%

17.4%

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Jan-13 Jul-13 Jan-14 Jul-14 Feb-15 Aug-15

United Kingdom Germany China Brazil U.S.

Policy News


United States

• Hillary Clinton Rolls Out $350 billion, 10-year College Affordability Plan – Hillary Clinton rolled out her college affordability plan Monday, pledging to voters in New Hampshire that "costs won't be a barrier" to secondary education in a Clinton administration. She touted the plan as a way to lower college costs while at the same time making it easier for American families to send their children to school. (CNN)

• Mayoral control of New York City public schools – Under a new mayor and chancellor control, innovations have been introduced, including universal preschool for four year-olds; transformation of several struggling schools into community schools; and substantial investment in new art teachers, programs and facilities. New York state legislators and the public are again debating over mayoral control of New York City public schools. (USNews)

• U.S Department of Education Announces New Grants for Charter Schools Serving Low-Income Students – The U.S. Department of Education announced a $4 million grant competition for planning and launching high-quality public charter schools through the non-state educational agency grant program. In addition, operators of existing high-quality public charter schools can receive funding to share information with other schools about best practices. (US Dept of Education)

• Federal Education Funding Plummeting – Over the last five years, Congress has cut federal funding for K-12 education by nearly 20 percent, about five times more than overall spending cuts. Education spending as a percentage of all government spending has also consistently decreased over the last five years, down to just over 1 percent in 2015 from 1.27 percent in 2011. (USNews)

United Kingdom

• UK Law Targets Extremism in Schools – The law, an unusual measure that requires teachers, including at preschools, to report extremist leanings or behavior by students to police in the U.K., has been enacted as the government steps up its efforts to counter terrorism at home and abroad. The provision applies to all public officials, including health workers and local government employees, requiring them to alert authorities if they suspect someone is at risk of becoming radicalized. (WSJ)

• Michael Gove’s School Reforms ‘ignored’ rise in pupils’ Mental Illness – A former health minister has claimed Michael Gove quietly downgraded the importance of mental health in schools during his time at the Department for Education amid an explosion in the number of young people falling ill. (The Guardian)

• New Reforms to Raise Standards And Improve Behaviour – Nicky Morgan announces new measures to ensure every child leaves school with world-class qualifications in crucial subjects. The plans underline the government’s clear one-nation agenda - giving every child the chance to go to a great school, securing them a brighter future and giving families the assurance that their children are getting the very best education and opportunities. (GOV.UK)

• New £10,000 Grants to Continue Drive to Eliminate Iilliteracy – School reform minister Nick Gibb announces new grants to help primary schools spread their reading expertise to other schools. Primary schools that excel at teaching pupils to read will receive £10,000 to help them spread their expertise to other schools. To ensure as many young people as possible develop a strong grasp of reading early on, the grants will be made available to 8 groups of schools, led by top-performing primaries. (GOV.UK)

http://edition.cnn.com/2015/08/10/politics/hillary-clinton-college-affordability/

http://www.usnews.com/opinion/knowledge-bank/2015/06/10/bill-de-blasio-should-get-mayoral-control-of-new-york-city-schools

http://www.ed.gov/news/press-releases/us-department-education-announces-new-grants-charter-schools-serving-low-income-students

http://www.usnews.com/news/blogs/data-mine/2015/06/24/report-federal-education-funding-cut-by-5-times-more-than-all-spending

http://www.wsj.com/articles/u-k-law-targeting-extremism-in-schools-draws-criticism-from-muslim-groups-1435755146

http://www.theguardian.com/education/2015/jul/04/michael-gove-ignored-school-pupils-mental-illness

https://www.gov.uk/government/news/new-reforms-to-raise-standards-and-improve-behaviour

https://www.gov.uk/government/news/new-10000-grants-to-continue-drive-to-eliminate-illiteracy

Policy News


Germany

• German Companies Support US-German Initiative on Education and Training – The signing of a Joint Declaration between the United States of America and the Federal Republic of Germany is an important step to enhance vocational education in the US and a strong signal for a thriving transatlantic relationship. (AHK)

Brazil

• Brazil To Extend College Loan Program This Year – Brazil will offer a second round of its marquee college loan program this year, extending more resources to education despite budget cuts that have hit much of the federal budget. Education Minister Renato Ribeiro Janine confirmed the second round of financing for the student loan program known as Fies. (Reuters)

China

• China Increases Subsidy to Support Compulsory Education – A subsidy of $21.4 billion has been given to support compulsory education in rural areas. The volume marked a rise of 6.6%, or 8.1 billion yuan, from last year. China requires children to receive nine-year compulsory education with the age range from 6 to 15. (China Education)

• China Invests Heavily on Children's Education – Conditions for China's most humble elementary schools have improved significantly since the year's beginning. "More than 4 million rural kids will benefit from the national project to extend digital educational resources," according to the Ministry of Education. (China Education Sector)

• College Graduates Get Extra Decade to Repay Student Loans – College and graduate school graduates will have up to 10 more years to repay their student loans so they will be face less financial pressure. Students will now have 20 years to repay the loans they take out to finance their higher education. (Caixin)

Japan

• Japan to Introduce Mandatory English Test for Junior Highs – The Japanese education ministry said Friday it will newly introduce a mandatory English proficiency test for junior high school students nationwide in 2019 as part a new plan to improve English skills of junior high and high school students. (News on Japan)

Australia

• More Students from Farming Families to Receive Youth Allowance – More dependent students who live away from home could qualify for the payment worth up to $426.80 a fortnight. National party senator Bridget McKenzie said the removal of the family assets test would allow 4,100 more students to claim the allowance. (The Guardian)

• Higher education reform measures by the governement – The Government is committed to having an affordable and sustainable higher education system. From Jan 2016 the Government would extend the demand driven funding system to include all higher education diplomas, advanced diplomas and associate degree courses. (Education.gov)

• Australia's second P-TECH school to be set up in Ballarat – Australia's second P-TECH pilot school, which brings industry-led vocational education to students, will open in Ballarat with the backing of IBM. The school, to be called Federation College, will be located within Federation University, and help students towards a diploma, advanced diploma or associate degree in a STEM (science, technology, engineering and maths) related discipline. (Financial Review)

_____________________ Note: Policy news represents selected highlights. Please click on the associated link to view the complete report / article.

http://www.rgit-usa.com/uploads/media/Press_Joint_Declaration_Education_Training.pdf

http://www.reuters.com/article/2015/01/16/us-brazil-education-intervention-idUSKBN0KP26T20150116

http://www.chinaeducenter.com/en/cedu/edunews28.php

http://www.chinaeducenter.com/en/cedu/edunews29.php

http://english.caixin.com/2015-07-10/100827958.html

http://www.newsonjapan.com/html/newsdesk/article/112759.php

http://www.newsonjapan.com/html/newsdesk/article/112759.php

http://www.theguardian.com/australia-news/2015/may/13/more-students-from-farming-families-to-receive-youth-allowance

https://education.gov.au/students-2

http://www.afr.com/news/policy/education/australias-second-ptech-school-to-be-set-up-in-ballarat-20150807-gitsvd

Sub-Sector Commentary and Company News


Despite lingering macroeconomic pressures from the Great Recession, the global education industry continues to benefit from favorable, long-term secular trends. Population growth in most developed nations, combined with a continuing shift from industrial to service-based, knowledge economies will drive demand for greater educational attainment. As the public sector struggles with funding challenges, aging infrastructure and generally disappointing student outcomes, nimble, technology-enabled content and service providers, which can efficiently deliver high quality solutions, stand to benefit. The following section highlights selected recent/current trends and important news and events within each of the identified education sub-sectors.

Primary & Secondary Education Key Products & Services

• Childcare/Nurseries; EMOs/Charter Schools; Teacher Professional Development; and Tutoring Sector Themes

• The number of families receiving their first choice of

primary school has fallen in many parts of England, as a baby boom puts a squeeze on classroom places. The UK’s birth rate has been rising in recent years, with more than 700,000 live births in 2011 compared with 500,000 10 years before

• The OECD singled out China’s education system in its latest economic survey, warning that it is not producing graduates and workers with the right skills for a services-based economy

• The White House recently detailed a new $80 billion

proposal intended to help families afford child care as a part of a post-State of the Union policy push

• Childcare costs are set to rocket in Australia if the Productivity Commission’s recommendations on fees are adopted

Public Company Earnings & Corporate Events • July 14th – Nord Anglia Education, Inc. (NYSE: NORD) announced

financial results for the third quarter of fiscal 2015, the three month period ended May 31, 2015. Revenue increased 22.7%, from $138.5 million in the same period of fiscal 2014 to $170.0 million. Adjusted EBITDA increased from $42.6 million to $47.9 million. Adjusted Net Income was $23.6 million or $0.24 per diluted share compared to $14.5 million or $0.16 per diluted share reported a year ago.

• July 21st – New Oriental Education and Technology Group Inc. (NYSE: EDU), announced results for the fourth fiscal quarter and fiscal year ended May 31, 2015. Reported net revenues increased by 9.5% YoY to $1.25 billion, compared to $1.14 billion a year ago. Operating income was $151.4 million, in comparision to $197.6 million a year ago. Net income attributable to the company decreased by 11.5% to $190.9 million, compared to $215.7 million a year ago. Diluted net income per share attributable to the company was $1.21, compared to $1.37 a year ago.

• July 23rd – Scholastic Corporation (NasdaqGS:SCHL) announced results for the fourth quarter and fiscal year ended May 31, 2015. Total revenues from continuing operations were $1.64 billion, an increase of 5% compared to $1.56 billion in 2014. Income from continuing operations was $32.9 million, compared to $10.4 million in 2014. Operating income increased by 14%, to $79.6 million, compared to $69.6 million a year ago. For fiscal 2015, earnings per diluted share from continuing operations excluding one-time items, increased 10%, to $1.29 versus $1.17 in fiscal 2014.

• July 29th – BrightPath Early Learning Inc. (TSXV:BPE) reported financial results for the second quarter of fiscal 2015, the three month period ended June 30, 2015. Revenue increased 5.3% YoY from CAD13.2 million to CAD13.9 million. Adjusted EBITDA increased 12.5% YoY from CAD1.6 million to CAD1.8 million. Net income increased YoY from a loss of $0.5 million to a profit of $0.4 million.

• July 31st – Benesse Holdings, Inc. (TSE:9783) announced financial results for the first quarter ended June 30, 2015. For the period, the company reported net sales of ¥107.4 billion, operating income was ¥623.0 million, ordinary income was ¥321.0 million and net loss was ¥419.0 million compared with net sales of ¥115.5 billion, operating income was ¥5.0 billion, ordinary income was ¥4.7 billion and net loss was ¥13.6 billion for the same period a year ago.

• August 13th – Xueda Education Group (NYSE: XUE) announced its unaudited financial results for the quarter ended June 30, 2015. Total net revenues increased 0.4% to $121.3 million from $120.8 million. Net income attributable to Xueda Education Group was $10.7 million, compared to $15.3 million. Non-GAAP net income per ADS attributable to Xueda Education Group was $0.19, compared to $0.27.

• August 13th – Educomp Solutions Limited (BSE:532696) reported financial results for the first quarter ended June 30, 2015. For the quarter, on a consolidated basis, the company reported net sales of INR 1,432.3 million compared to INR 1,436.4 million a year ago. Loss from operations before other income, finance costs and exceptional items of INR 137.3 million compared to INR 146.6 million a year ago. Net loss per share was INR 6.96 compared to INR 28.08 a year ago.

LTM Primary & Secondary Education Performance In the Media

• New bill would support innovative internet pilots for students. New legislation introduced in the U.S. Senate would support innovative methods to give students access to the internet and digital tools outside of classrooms. (eSchool News)

• English pupils' maths scores improve under east Asian approach. Schools in England experimenting with east Asian teaching methods have seen an improvement in children’s mathematics skills after just one year, according to a study.. (The Guardian)

• Early literacy 'key' to closing education gap. Improving the language skills of young children from deprived backgrounds could be the key to closing Scotland's attainment gap, according to a report. The research by the Read On, Get On campaign suggested one in five children growing up in poverty is unable to read well by the time they finish primary. (BBC)

• Calculator ban 'has improved children's numeracy skills', ministers claim. New government figures in England suggest a record number of children are passing maths tests thanks to classroom calculator ban. Teachers said banning calculators wasn’t the reason for a raise in standards in the subject but attributed the results to quality teaching. (The Telegraph)

_____________________ Source: Capital IQ as of August 31, 2015. A list of companies comprising each index may be found on page 1.

(20%)

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0%

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8/31/14 10/22/14 12/13/14 2/3/15 3/27/15 5/18/15 7/9/15 8/31/15

Primary & Secondary Education NASDAQ S&P 500

(3.7%)(1.6%)

4.3%

1

http://www.eschoolnews.com/2015/06/23/bill-internet-plans-784/

http://www.theguardian.com/education/2015/jun/18/english-pupils-maths-scores-improve-under-east-asian-approach

http://www.bbc.com/news/uk-scotland-33310225

http://www.telegraph.co.uk/education/educationnews/11828257/Calculator-ban-has-improved-childrens-numeracy-skills-ministers-claim.html



Higher Education

Key Products & Services

• Traditional Colleges & Universities; Online Colleges & Universities; Vocational Training; and Online Enablers Sector Themes

• Brazil continues to make higher education a priority with

enrollment more than doubling over the last 10 years

• Institutions now serve more than 7 million people

• Numerous collegiate institutions face federal scrutinity over

the use of taxpayer funds according to the United States Department of Education

• Findings from a survey released by Kaplan Test Prep show that well-connected applicants and legacies have a real college admissions advantage, confirming the results of a 2011 Economics of Education Review study

• Enrollment in Korean language courses at U.S. colleges and universities showed the largest percentage growth of any foreign language

• Almost half of the English Universities plan to expand their

student intake over the next five years, with some setting ambitious targets to increase recruitment by as much as 50%, according to a survey by the Guardian. Many universities will look overseas to boost their application rates. A fast-growing source of undergraduates for English universities is EU students – who are subject to similar funding rules to home UK students and will also now be exempt from cap on recruitment

Public Company Earnings & Corporate Events

• July 26th – Navitas Limited (ASX:NVT) reported results for the year ended June 30, 2015. Reported revenue for the period was $980.3 million compared to $878.2 million a year ago. Underlying EBITDA was $163.1 million compared to $144.9 million a year ago, 13% up on the prior year. Diluted EPS was 19.1 cents compared to 13.7 cents a year ago.

• July 28th – Capella Education Company (NASDAQ: CPLA) announced financial results for the second quarter ended June 30, 2015. Revenues were $108.0 million, compared to $104.8 million in the second quarter of 2014, an increase of 3.1%. Operating income was $17.2 million, compared to $15.5 million for the same period in 2014. Net income for the second quarter of 2015 was $10.3 million, compared to $9.0 million for the same period in 2014. Net income per diluted share was $0.83, compared to $0.72 for the same period in 2014.

• July 29th – Strayer Education, Inc. (Nasdaq:STRA) announced financial results for the second quarter ended June 30, 2015. Revenues for the second quarter ended June 30, 2015 decreased 3% to $109.8 million compared to $112.7 million for the same period in 2014, principally due to lower enrollment and lower revenue per student. Net income was $11.9 million compared to $12.9 million for the same period in 2014.

• June 29th – Apollo Education Group, Inc. (NasdaqGS:APOL) announced financial results for the third quarter ended May 31, 2015. Net revenue decreased by 14.1% to $681.4 million, compared to $793.6 million for

the third quarter of 2014. Net income attributable to the company was $48.1 million, compared to $66.0 million a year ago. Diluted income per share was $0.44, compared to $0.59 a year ago.

• July 30th – ITT Educational Services Inc. (NYSE:ESI) reported results for the second quarter ended June 30, 2015. Reported revenue decreased to $214.2 million, compared to $238.1 million a year ago. Net income was $0.7 million, compared to $0.4 million a year ago. Earnings per diluted share was $0.03 against $0.02 a year ago.

• August 6th – Career Education Corporation (NASDAQ: CECO) reported operating and financial results for the second quarter ended June 30, 2015. Revenues for the second quarter decreased 6% to $174.8 million compared to $186.2 million for the same period in 2014. Adjusted EBITDA was ($4.2) million compared to ($19.5) million for the second quarter of 2014.

• August 10th – American Public Education, Inc. (NASDAQ:APEI) announced financial results for the second quarter ended June 30, 2015. Total revenue for the second quarter of 2015 decreased 6.1% to $80.3 million, compared to total revenue of $85.5 million in the second quarter of 2014. Income from operations before interest income and income taxes in the second quarter of 2015 was $11.6 million, compared to $15.8 million in the second quarter of 2014. Net income for the second quarter of 2015 was $7.1 million, or $0.42 per diluted share, compared to net income of $9.8 million, or $0.56 per diluted share for the second quarter of 2014.

LTM Higher Education Performance In the Media

• New loans scheme to make masters students mobile. The Erasmus+ Master Loan Guarantee Scheme launched for post graduate students will receive around €500.0 million from the budget of the huge Erasmus+ student mobility programme, which the European Commission says will help to raise up to €3.0 billion in loans to promote higher education. (Universityworld News)

• Education dept. takes steps to ease repayment for student-loan borrowers. Obama administration is taking several steps to ease borrowers’ repayment burdens and expand and remake Pay as You Earn policy. This policy would also make it easier for borrowers in the military to receive an interest-rate reduction on their student loans. (The Chronicle)

• Asia the next higher education superpower? Many Asian countries are setting ambitious goals to expand and improve their higher education sectors. By 2020, China alone will account for 30% of the world’s university graduates between the ages of 25 and 34. India is projected to add 300 million people to its workforce over the next 2 decades, which is equivalent to the entire U.S. population (Business Spector)

• Merging High School, College and Work to Fill the STEM Pipeline – High schools are partnering with higher education institutions and business leaders to transform into academies with a focus on more quickly and efficiently preparing students for the workforce, with a focus on Science, Technology, Engeneering and Mathematics. (U.S. News)


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8/31/14 10/22/14 12/13/14 2/3/15 3/27/15 5/18/15 7/9/15 8/31/15

Higher Education NASDAQ S&P 500

(46.3%)

(1.6%)

4.3%

2

http://www.universityworldnews.com/article.php?story=20150618152135968

http://chronicle.com/blogs/ticker/education-dept-takes-steps-to-ease-repayment-for-student-loan-borrowers/101625

http://chronicle.com/blogs/ticker/education-dept-takes-steps-to-ease-repayment-for-student-loan-borrowers/101625

http://www.businessspectator.com.au/article/2015/6/24/china/asia-next-higher-education-superpower

http://www.businessspectator.com.au/article/2015/6/24/china/asia-next-higher-education-superpower

http://www.usnews.com/news/stem-solutions/articles/2015/06/30/merging-high-school-college-and-work-to-fill-the-stem-pipeline



Professional Education & Training Key Products & Services

• Professional Skills Training; Certification & Licensure; Compliance; and Sales & Leadership Sector Themes

• Despite providing vocational training during the secondary and higher secondary education in India, a working paper at the Indian Institute of Management, Ahmedabad has found several drawbacks in the outcome among vocational education

• Demand for professional and vocational training should be

on the rise as the U.S. workforce is not keeping pace with the economy’s need for skilled workers

• Beginning in 2015, AICPA voting members who seek to obtain the CGMA (Chartered Global Management Accountant) designation will have to pass a new examination

• The vocational education segment has been growing

steadily due to strong industry tailwind and favorable government policies

• The rising middle and upper classes in China have helped support and transform the education market as Chinese students look for ways to differentiate themselves in a global workplace


• July 1st – Franklin Covey Co. (NYSE: FC) announced financial results for its fiscal third quarter ended May 30, 2015. Third quarter fiscal 2015 revenue increased 2.5% to $48.3 million, after absorbing $1.3 million of adverse revenue impact from foreign exchange rates. Third quarter Adjusted EBITDA was $4.9 million, compared with $5.1 million in the third quarter of the prior year. Third quarter net income decreased to $1.2 million compared with $1.9 million in the third quarter of fiscal 2014. Diluted EPS for the quarter ended May 30, 2015 decreased to $.07 per share compared with $.11 per share in the third quarter of the prior year.

• July 30th – GP Strategies Corporation (NYSE: GPX) reported financial results for the second quarter ended June 30, 2015. Revenue of $125.7 million for the second quarter of 2015 compared to $134.9 million for the second quarter of 2014. Gross profit of $20.1 million, or 16.0% of revenue, for the second quarter of 2015 compared to $24.8 million, or 18.4% of revenue, for the second quarter of 2014. Diluted earnings per share of $0.27 for the second quarter of 2015 compared to $0.42 per share for the second quarter of 2014.

• August 11th – Learning Tree International (NASDAQ: LTRE) announced its revenues and results of operations for its third quarter of fiscal year 2015, which ended July 3, 2015. In its third quarter of fiscal year 2015, Learning Tree reported revenues of $22.7 million, loss from operations of $4.3 million, and net loss of $4.3 million, or ($0.33) per share. These results compare with revenues of $25.7 million, loss from operations of $2.9 million, and net loss of $2.7 million, or ($0.21) per share in its third quarter of fiscal year 2014.

• August 18th – China Distance Education Holdings Limited (NYSE: DL) announced financial results for the third quarter of fiscal year 2015 ended June 30, 2015. Net revenue increased by 15.3% to $28.8 million from $25.0 million in the prior year period, and exceeding the Company’s prior guidance range of $27.5 million to $28.7 million. Gross profit increased by 19.9% to $17.4 million from $14.5 million in the prior year period. Non-GAAP operating income increased by 4.1% to $6.4 million from $6.1 million in the prior year period. Non-GAAP net income increased by 6.0% to $5.7 million from $5.4 million in the prior year period. Basic and diluted net income per American Depositary Share was $0.146 and $0.146, respectively, representing a y-o-y increase of 1.4% and 0.7%, respectively.

LTM Prof. Education & Training Performance In the Media

• DeVry Education adds professional development courses. DeVry Education Group recently introduced 50 new continuing professional education (CPE) courses across 6 industry topics. These CPE programs update students on various complex and challenging regulations. They are designed to cater to the needs of professionals of accounting, audit, governmental audit, tax, ethics and communication. (Yahoo Finance)

• Increase in education and training investments. Solas, an education and training body will invest €600m in courses for 360,000 students, focusing on IT, business and other areas with higher carrer oppurtunities. This involves working with education and training boards (ETBs), voluntary secondary and community comprehensive schools, and State agencies and bodies. Solas is responsible for funding, planning and co-ordinating training and further education programmes. (Irish Times)

• Teacher-training initiative aims to reinvigorate profession. A group of academics plans to launch a teacher-training program aimed at bolstering the nation’s teaching corps at a time of pressure to improve educators’ performance and falling enrollment in teacher-preparation programs. (WSJ)


(50%)

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8/31/14 10/22/14 12/13/14 2/3/15 3/27/15 5/18/15 7/9/15 8/31/15

Professional Education & Training NASDAQ S&P 500

(40.9%)

(1.6%)4.3%

3

http://finance.yahoo.com/news/devry-upgrades-continuing-professional-education-170005901.html

http://www.irishtimes.com/news/education/solas-sets-its-sights-on-skills-shortages-1.2351245

http://www.wsj.com/articles/teacher-training-initiative-aims-to-reinvigorate-profession-1434465906



Education Technology Key Products & Services

• Lead Generation & Enrollment Management Services; Adaptive Learning Software; Instructional Management Systems (IMS) & Learning Management Systems (LMS); Student Information Systems (SIS); Student Response Systems/Whiteboards; and Video/Class Capture

Sector Themes

• The online education industry in China is strong as Guangdong Qtone Education has rocketed 500% in the past year, joining other Chinese online education platforms that include TAL Education and New Oriental Education

• Massive Open Online Courses, or MOOCs are continuing

their upward trend as for profit educators continue to leverage new teaching models to serve a more tech savvy and older population

• Traditional colleges, however, are continuing to resist online learning in favor of the classroom model

• Tarpon Investments recently made an investment for a substantial stake of Abril Educacao, a large provider of online education and training in Brazil


• August 3rd – QuinStreet, Inc. (Nasdaq:QNST) announced financial results for the fiscal year ended June 30, 2015. For the fiscal year, the Company reported revenue of $282.1 million, and adjusted EBITDA of $10.0 million, or 4% of revenue. Adjusted net income for the fiscal year 2015 was $2.5 million, or $0.06 per share, and GAAP net loss was $20.0 million, or ($0.45) per share. Adjusted net income excludes stock-based compensation expense, and amortization of intangible assets, net of estimated tax. The Company closed the fiscal year with $60 million in cash and $45 million in net cash.

• August 3rd – Chegg, Inc. (NYSE:CHGG) reported financial results for the second quarter ended June 30, 2015. Revenue of $67.0 million, an increase of 4% compared to second quarter 2014. Digital Revenue grew 62% y-o-y to $30.2 million, or 45% of total revenues. Print Revenue of $36.8 million and Non-GAAP Gross Profit of $31.6 million. Adjusted EBITDA was $3.2 million. Non-GAAP Net Income was $1.0 million.

• August 6th – 2U, Inc. (NASDAQ: TWOU) reported financial and operating results for the second quarter ended June 30, 2015. Revenue was $35.2 million, an increase of 42% from $24.7 million in the second quarter of 2014. Net loss attributable to common stockholders was ($9.6) million, or ($0.23) per share, compared to ($10.6) million, or

($0.27) per share, in the second quarter of 2014. Adjusted net loss was ($5.8) million, or ($0.14) per share compared to ($8.5) million, or ($0.22) per share, in the second quarter of 2014. Adjusted EBITDA loss was ($4.0) million, compared to a loss of ($7.1) million in the second quarter of 2014.

• August 6th – SMART Technologies Inc. (NASDAQ:SMT) (TSX:SMA) announced financial results for the first quarter ended June 30, 2015. For the period, the company’s revenue was $98.7 million against $137.5 million a year ago. Adjusted EBITDA decreased to $1.4 million from $10.3 million in 2014. Adjusted net loss was $3.7 million against $0.3 million a year ago.

• August 13th – Sonic Foundry, Inc. (NASDAQ:SOFO) announced consolidated financial results for its fiscal 2015 third quarter ended June 30, 2015. Revenues of $10.6 million, an increase of 7% over the third quarter of fiscal 2014. Gross margin of $7.1 million or 67% compared to $7.8 million or 69% for the third fiscal quarter of fiscal 2014. Adjusted EBITDA loss of ($129) thousand compared to positive Adjusted EBITDA of $597 thousand last year. Net loss of $921 thousand or $(0.21) per basic share compared to a net income of $33 thousand or $0.01 per basic share last year.

LTM Education Technology Performance In the Media

• Robots help K-5 students learn about coding through core subjects. Robot creator Wonder Workshop has made Dash, Dot and Blocky, three robots that can be programmed with four different apps to respond to motion, sound and expressions. Accompanying the robots is a standards-aligned curriculum supplement intended to make coding instruction more approachable for teachers of students in grades K-5. (The Journal)

• The only metric that matters in EdTech: Student outcomes. Education technology is getting a lot of attention these days. The Obama Administration proposed nearly $4 billion to help wire our schools. Meanwhile, more than $600 million in venture capital poured into ed tech last year – a 32% increase over the prior year. (Forbes)

• Apple adds discussions, homework hand-in and a grade book to iTunes U. Apple has updated its iTunes U app to include a number of new features designed to help teacher and students communicate. A new discussion feature allows students and teachers to have 1-to-1 conversations within the app. Homework hand-in provides time-stamped delivery of term papers, book reports and problem sets. Once assignments have been turned in, teachers can use PDF annotation to mark them up with comments. (The Journal)


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8/31/14 10/22/14 12/13/14 2/3/15 3/27/15 5/18/15 7/9/15 8/31/15

Education Technology NASDAQ S&P 500

(6.3%)

(1.6%)

4.3%

4

http://thejournal.com/articles/2015/06/30/robots-help-k5-students-learn-about-coding-through-core-subjects.aspx?admgarea=News1

http://www.forbes.com/sites/schoolboard/2015/05/11/the-only-metric-that-measures-the-success-of-education-technology/

http://thejournal.com/articles/2015/06/29/apple-adds-discussions-homework-hand-in-and-a-grade-book-to-itunes-u.aspx?admgarea=News1



Diversified Education Services & Publishing Key Products & Services

• Basal & Supplemental Content; Assessment; Data Analytics & Reporting Sector Themes

• Organic growth opportunities have waned and companies are beginning to consolidate and expand strategic positions through acquisitive growth

• The EU continues to help developing countries worldwide, encouraging Libya to invest further in their education infrastructure

• Increasing trend towards free content, open source platforms and pay-per-use models

• The adoption of computer assisted learning has increased the demand for anti-cheating software

• Predictive analytics are continuing to be deployed by universities nationwide, allowing universities to create algorithims that identify signs of academic success and struggle


• June 16th – John Wiley & Sons, Inc. (NYSE:JWa and JWb), reported results for the fourth quarter and fiscal year ending April 30, 2015. Fourth quarter revenue grew 2% on a constant currency basis to $442.0 million and full year revenue grew 4% on a constant currency basis to $1,822 million due to organic growth in Research (+2%) and Education (+3%) and the contribution from recent acquisitions in Professional Development (+13%). Research revenue of $1.04 billion up 2% on a constant currency basis. Adjusted EPS of $3.26, up 10% on a constant currency basis.

• July 24th – Pearson announced financial results for the half year ended June 30, 2015. For the half year, the company reported sales of £2.2 billion, compared to £2.04 billion a year ago. Loss for the period from continuing operations was £79 million compared to £26 million a year ago. Basic and diluted loss per share from continuing operations was 9.7 pence compared to 3.2 pence a year ago.

• July 29th – Wolters Kluwer NV (ENXTAM:WKL) announced earnings results for the six months ended June 30, 2015. For the six months, the company reported revenues EUR 2.02 billion, compared to EUR 1.72 billion a year ago. Adjusted operating profit was EUR 391 million, compared to EUR 313 million a year ago. Adjusted net profit was EUR

235 million, compared to EUR 190 million a year ago. Diluted adjusted EPS was EUR 0.79, compared to EUR 0.63 a year ago. Adjusted free cash flow was EUR 170 million, compared to EUR 136 million a year ago.

• August 6th – Global learning company Houghton Mifflin Harcourt Company (NASDAQ: HMHC) announced its financial results for the second quarter ended June 30, 2015. Net sales were $380 million compared with $402 million in the second quarter of 2014, driven by domestic education business and strong net sales from its culinary line. Adjusted EBITDA was $80 million for the second quarter 2015 compared with $109 million in the second quarter of 2014. Net loss was ($8) million compared to net income of $12 million for the second quarter 2015 and 2014. HMH captured 41% market share in its addressable domestic education market for K-12 instructional materials.

• August 14th – Health division of Wolters Kluwer NV (ENXTAM:WKL) has entered into an agreement to acquire Learner's Digest International, LLC, which provides independent continuing medical education (CME) to physicians in the U.S., for $150.0 million in cash. Learner's Digest had revenues of $39 million in 2014, and has seen robust growth in recent years. The companies will combine their strengths to provide learning solutions that enable clinicians to manage complex CME requirements.

LTM Diversified Education Services & Publishing Performance In the Media

• 'Nation's Report Card' to gather data on grit, mindset. The nation's premiere federal testing program is poised to provide a critical window into how students' motivation, mindset, and grit can affect their learning. National Assessment of Educational Progress, often dubbed the "nation's report card," is working to include measures of these factors in the background information collected with the tests beginning in 2017. (Education Week)

• IT has helped scholars collaborate, now may diversify. The growth of computer networking since the 1980s has had a profound impact on academic research and scholarship. What’s coming next may not be so much a breakthrough in information technology as a change in who develops and runs it. (Cornell Chronicle)

• Why creativity in the classroom matters more than ever. Learning a specific skill set doesn’t have the value in today’s world that it once did. Learning how to be more creative (and thus adaptable) – now that’s what prepares students for life beyond the classroom. Schools and businesses throughout the world are latching onto this idea. Academia has started to embrace providing courses in creativity. (Edudemic)


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Diversified Education Services & PublishingNASDAQS&P 500

6.2%

(1.6%)

4.3%

5

http://www.edweek.org/ew/articles/2015/06/03/nations-report-card-to-gather-data-on.html

http://www.news.cornell.edu/stories/2015/07/it-has-helped-scholars-collaborate-now-may-diversify

http://www.edudemic.com/creativity-in-the-classroom/

Baird’s Equity Research Commentary


Meuler’s Corner Jeff Meuler recently initiated coverage for 2U, Inc. Please access the full report here.

Jeff Meuler, CFA Senior Equity Research Analyst

[email protected]

http://www.rwbaird.com/SharedPDF/emailTemplates/InvestmentBanking/twou71415initiating.pdf

mailto:[email protected]

Baird’s Equity Research Commentary


Select Equity Research Commentary

Baird’s top-ranked* research department provides active, high-quality equity research on various education services companies. Excerpts from recent research notes are below. Please click on the associated link for a complete copy of each report.

“DeVry is one of the more diversified private sector education providers. The Company's diversified positioning has the potential to lead to more resilient enrollment characteristics, cost sharing and best practices sharing between businesses, a more diversified risk profile, and greater options for long-term capital allocation decisions.”

— Research note on 8/19/2015

“Grand Canyon Education has now achieved more than three straight years of yoy new enrollment growth and retention has been increasing as well. We believe LOPE is capable of roughly 10%+ revenue growth and 12-15%+ EPS growth over the next 3-5 years as the company continues to build out its traditional campus while growing its online business.”


“Bright Horizons Family Solutions operates under a solid business model, with high returns on capital, recurring revenue streams, demand that is largely non-cyclical (modest amount of pro-cyclicality of demand), and solid operating margins.. BFAM is well positioned for continued revenue growth and margin expansion, given its leading position in the fragmented Full Service market, with opportunities for organic enrollment growth, acquisitions with attractive economics, and tuition price increases (avg. 3-5% over past five years), complemented by continued strong growth in high-margin Back-Up Care (generated 30.4% '14 operating margin), and scaling of Educational Advisory business where initial traction is encouraging.”


_____________________ * Greenwich Associates U.S. Equity Investors – Small/Mid-Cap Funds, April 2015. Surveys conducted with 92 U.S. small-cap and mid-cap fund managers.

http://www.rwbaird.com/SharedPDF/emailTemplates/InvestmentBanking/dv8-19-15.pdf

http://www.rwbaird.com/SharedPDF/emailTemplates/InvestmentBanking/lope8-11-15.pdf

http://www.rwbaird.com/SharedPDF/emailTemplates/InvestmentBanking/bfam8-5-15.pdf

Share Prices and Valuation


LTM Stock Price Performance

_____________________ Source: Capital IQ as of August 31, 2015. A list of companies comprising each index may be found on page 1. The S&P 500 Index is an unmanaged index commonly used to measure common stock total performance.

Average Valuation Multiples

_____________________ Source: Capital IQ as of August 31, 2015. (1) Diversified Education Services & Publishing average valuation P/E multiples exclude Houghton Mifflin Harcourt Company. Please see glossary on page 29 for definitions and other important information.

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

8/31/14 10/22/14 12/13/14 2/3/15 3/27/15 5/18/15 7/9/15 8/31/15

S&P 500(1.6%)

Professional Education & Training

(40.9%)

EducationTechnology

(6.3%)

HigherEducation

(46.3%)

Diversified Education Services & Publishing

6.2%

Primary &SecondaryEducation

(3.7%)

1.2x

8.3x

24.6x

0.9x

4.6x

14.9x

1.1x

6.9x

12.3x

2.0x

12.3x

18.6x

2.5x

10.2x

14.2x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

EV / 2016P Revenue EV / 2016P EBITDA 2016P P/E

Primary & Secondary Education Higher Education Professional Education & Training Education Technology Diversified Education Services & Publishing (1)

Select Relevant Operating / Valuation Metrics


Below are summary operating and valuation metrics for education services companies as of August 31, 2015. A company-by-company analysis is located on pages 24, 25 and 26.

2015E Consensus Revenue Growth

LTM EBITDA Margins

LTM Net Income Margins

LTM EBITDA Multiples

2015E P/E Multiples

2016P P/E Multiples

_____________________ Source: Capital IQ as of August 31, 2015. (1) Diversified Education Services & Publishing average valuation P/E multiples exclude Houghton Mifflin Harcourt Company. Please see glossary on page 29 for definitions and other important information.

4.5%

(7.2% )(8.7% )

0.6%

4.7%

(15.0%)

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%


HigherEducation

ProfessionalEducation &

Training

EducationTechno logy

Diversif iedEducationServices &Pub lishing

12.7%

16.4% 16.2%

10.4%

18.9%


HigherEducation


Training


Diversif iedEducation Services

& Publishing

4.6%

9.2%

11.5%

2.2%

9.0%


HigherEducation


Training



& Publishing

11.9x

4.7x

10.2x

12.5x13.4x


HigherEducation


Training



& Publishing

28.6x

14.3x

19.6x

11.3x

15.4x


HigherEducation


Training



& Publishing

24.6x

14.9x12.3x

18.6x

14.2x


HigherEducation


Training



& Publishing

(1)

(1)

Equity Offering Market Overview


EQUITY MARKET CONDITIONS Macroeconomic concerns drastically increased market volatility in August, led by fears stemming from the world’s second

largest economy, China – The DJIA posted its worst August in 17 years, while the S&P 500 recorded its worst performance in August since 2001

and worst monthly performance since May 2012 – All 10 S&P sectors fell with Healthcare, Financials, and Consumer Discretionary leading the decline at (8.1%), (6.9%),

and (6.6%), respectively Despite a GDP revision to 3.7% from 2.3% in Q2, uncertainty remains regarding the timing of rate hikes and persistent

fears about a China slowdown continue to weigh on markets Oil prices erased early losses this month to post a 4.4% gain, following the strongest three-day rally since Iraq’s 1990

invasion of Kuwait

IPO PRICING ACTIVITY IPO issuance remained consistent with historical levels for August with 8 IPO pricings raising $1.4 billion, compared to 9

IPOs raising $1.0 billion in August 2014 – IPO activity is well below 2014 levels as 116 IPOs have priced YTD raising $23.8 billion, compared to 187 IPOs raising

$45.1 billion during the same period in 2014 The pricing environment remained stable in August as 75% of all IPOs priced above or within the range bringing the YTD

figure to 73% compared to 61% during all of 2014

IPO Pricing Statistics

2014 YTD (189 deals) 2015 YTD (116 deals) Price Change Offer to Current

_____________________ Source: Dealogic as of August 31, 2015. Note: Excludes deals under $15mm.

FOLLOW-ON OFFERING PRICING ACTIVITY Consistent with overall ECM activity, FO issuances declined with 45 pricings raising $11.3 billion during August, bringing the

YTD total to 512 offerings raising $154.7 billion – The median file-to-offer discount dropped in August to 3.3% compared to 5.5% in July – 100% secondary follow-on volume is at a YTD record high as 130 offerings, 52.3% of which are bought deals, have

raised $61.2 billion, up 11% from 2014 YTD’s 117 deals, 50.4% of which were bought deals, raised $43.0 billion Price Change File to Offer

Discount Last Trade to Offer

Price Change Offer to Current

_____________________ Source: Dealogic as of August 31, 2015. Excludes deals under $15mm.

Within the Range44.4%

Abov e the Range18.0%

Below the Range37.6% Within the

Range44.8%

Abov e the Range28.4%

Below the Range26.7%

2.2%

3.2%

2014 2015 YTD

(4.1%) (4.5%)

2014 2015 YTD

(2.9%) (2.8%)

2014 2015 YTD

(6.9%)

(5.1%)

2014 2015 YTD

Education Services Equity Activity


Select Recent Relevant Offerings (IPO) ($ in millions) % Change

Issuer Deal Type

Pricing Date

Days File / Offer

Post-Deal Mkt. Cap

Amount Offered

File / Offer

Last Trade /

Offer Offer / Current

China Maple Leaf Educational Systems Ltd International school operator. IPO 11/21/14 140 $3,841.9 $124.0 8.7% N/A (28.8%)

Evolve Education Group Ltd Childcare services provider. IPO 11/13/14 91 177.1 104.0 0.0% N/A 8.0%

Think Childcare & Education Ltd Operates childcare facilities. IPO 10/02/14 23 34.5 19.2 0.0% N/A 14.0%

FDM Group PLC Professional training. IPO 06/17/14 21 523.6 411.8 11.5% N/A 13.7%

Intueri Education Group Ltd Vocational schools. IPO 05/07/14 23 205.1 153.4 (6.0%) N/A 40.4%

Tarena International Inc Provides information technology (IT) professional education services. IPO 04/02/14 34 455.9 137.7 0.0% N/A 56.1%

2U Inc Provider of higher education degree programs online. IPO 03/27/14 34 508.7 137.2 8.3% N/A 21.5%

Nord Anglia Education Inc Provider of education and related educational services. IPO 03/25/14 35 1,564.0 349.6 0.0% N/A 15.8%

Houghton Mifflin Company Provides education and publishing solutions. IPO 11/13/13 41 1,679.5 251.9 (20.0%) N/A 62.2%

Chegg Inc. Operates student learning platforms. IPO 11/12/13 28 1,079.0 187.5 19.1% N/A (47.0%)

Vocation Ltd Provision of vocational education and training services. IPO 11/08/13 81 358.3 240.2 4.7% N/A 74.1%

Affinity Education Group Ltd Childcare centres operator. IPO 11/06/13 5 85.0 71.7 0.0% N/A 37.5%

Bright Horizons Family Solutions Inc Provider of employer-sponsored child care, early education and work/life solutions.

IPO 01/24/13 92 1,416.5 255.5 10.0% N/A 86.5%

Xueda Education Group Provider of tutoring services for primary and secondary school students. IPO 11/01/10 17 657.1 146.7 15.2% N/A (65.6%)

TAL Education Group K-12 after-school tutoring service provider. IPO 10/19/10 20 763.0 138.0 11.1% N/A 240.1%

Global Education & Technology Group Ltd Provider of educational courses and test preparation services in China. IPO 10/07/10 20 276.2 77.0 10.5% N/A 1.9%

Ambow Education Holding Ltd Provider of educational and career enhancement services. IPO 08/04/10 21 712.8 106.8 (9.1%) N/A (90.5%)

Mean $803.7 $174.1 3.5% N/A 17.0% Median 525.6 138.0 3.1% N/A 14.0%

____________________ Source: Dealogic and Capital IQ as of August 31, 2015. Note: Offerings chosen by Robert W. Baird & Co. Investment Banking for relevance to the education services subsectors. Excludes offerings under $15mm.

Select Recent Relevant Offerings (FO) ($ in millions) % Change

Issuer Deal Type

Pricing Date

Days File / Offer

Post-Deal Mkt. Cap

Amount Offered

File / Offer

Last Trade /

Offer Offer / Current

Bright Horizons Family Solutions Inc. FO 8/11/15 1 $3,837.09 $140.88 (1.3%) (1.6%) (0.2%)

Affinity Education Group Ltd FO 03/13/15 1 209.3 39.3 0.0% (11.9%) (9.3%)

Tree House Education & Accessories Ltd FO 12/18/14 3 290.4 31.3 0.0% 0.4% (9.9%)

Bright Horizons Family Solutions Inc FO 12/11/14 1 3,010.9 157.5 (1.6%) (1.6%) 15.7%

China E-Learning Group Ltd FO 11/07/14 0 239.3 32.3 0.0% (15.8%) 2.0%

G8 Education Ltd FO 10/23/14 1 1,595.2 87.8 0.0% (4.5%) (34.4%)

Vocation Ltd FO 09/11/14 1 704.3 68.6 0.0% (7.9%) (95.3%)

Abril Educacao SA FO 08/20/14 1 1,458.2 44.6 (1.3%) (1.3%) (96.5%)

Prestariang Bhd FO 06/26/14 1 283.8 23.8 0.0% (7.9%) 55.8%

Anima Educacao FO 05/09/14 0 344.0 57.8 (1.2%) (1.2%) (36.1%)

Bright Horizons Family Solutions Inc FO 03/26/14 1 2,548.9 289.5 (6.0%) (6.0%) 41.6%

Estacio Participacoes SA FO 09/19/13 0 2,366.4 177.8 (2.2%) (2.2%) 6.1%

Kroton Educacional SA FO 09/17/13 0 3,800.5 177.1 (3.7%) (3.7%) 36.7%

Kroton Educacional SA FO 09/03/13 0 4,390.3 65.1 (0.2%) (0.2%) 36.8%

Bright Horizons Family Solutions Inc FO 06/12/13 14 2,138.6 323.1 (6.9%) 0.0% 57.5%

Rosetta Stone Inc FO 06/06/13 1 378.2 56.0 (6.3%) (6.3%) (51.9%)

Estacio Participacoes SA FO 06/03/13 0 2,305.5 83.9 (1.0%) (1.0%) 13.4%

Abril Educacao SA FO 04/24/13 43 5,220.8 258.4 (8.1%) (1.9%) (97.1%)

Mean $1,840.3 $116.1 (2.3%) (4.3%) (9.7%) Median 1,595.2 68.6 (1.2%) (2.2%) 2.0%

____________________ Source: Dealogic and Capital IQ as of August 31, 2015. Note: Offerings chosen by Robert W. Baird & Co. Investment Banking for relevance to the education services subsectors. Excludes offerings under $15mm.

Education Services M&A Activity


Quarterly M&A Volume Trends – Global Middle-Market

For Q2 2015, there were a total of 3,142 disclosed middle-market transactions, on par with the 3,151 transactions in Q1 2015. ($ in billions)

_____________________ Source: Dealogic and Robert W. Baird & Co. M&A Market Analysis. Note: Middle-market transactions defined as those with a disclosed value of less than $1 billion. Q3 2015 as of August 31, 2015.

Global EBITDA Multiples by Deal Value

Multiples remain in line with recent years for deals that close. $500 - $1,000M deals have experienced above average valuation multiples to begin 2015. Over the first six months of the year, for all middle-market transactions across all industry sectors, the median Enterprise Value / EBITDA multiple was 8.0x.

Source: Capital IQ and Robert W. Baird & Co. M&A Market Analysis. YTD as of August 31, 2015. Note: Middle-market transactions defined as those with a disclosed value of less than $1 billion. YTD as of August 31, 2015.

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

# of Deals – $500M - $1,000M 99 87 81 79 67 87 85 120 75 77 106 114 82 101 125 111 84 110 88# of Deals – $100M - $499M 419 525 477 453 382 469 405 498 415 400 489 522 461 567 583 589 476 587 356# of Deals – <$100M 2,929 3,011 2,988 2,945 2,843 2,789 2,718 2,777 2,240 2,191 2,152 2,399 2,347 2,882 2,648 2,787 2,613 2,527 1,704Total Deal Value $210 $230 $213 $207 $174 $211 $195 $241 $179 $183 $216 $243 $195 $250 $260 $263 $208 $250 $169

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

$0

$50

$100

$150

$200

$250

$300

Num

ber o

f Tra

nsac

tions

Transaction Dollar Value

# of Deals – <$100M # of Deals – $100M - $499M # of Deals – $500M - $1,000M Total Deal Value

6.7x 7.0x6.2x 6.5x

7.1x 6.9x

8.1x9.0x 8.7x 8.9x 8.9x 8.9x9.2x

9.7x 9.5x

8.4x

9.5x

11.9x

7.5x8.2x

7.5x 7.7x 8.0x 8.1x

2010 2011 2012 2013 2014 YTD 20150.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

EBIT

DA M

ultip

le

<$100M $100M - $499M $500M - $1,000M Total Middle-Market

Education Services M&A Activity


Mergers & Acquisitions ($ in billions)

Source: Dealogic and Robert W. Baird & Co. M&A Market Analysis. Reflects total number of transactions and total disclosed deal value. Note: Deals classified by announcement date. YTD as of August 31, 2015.

Select Recent Relevant Transactions ($ in millions)

Date

Effective Target Name Acquiror Name Enterprise

Value

7/15/15 Busuu Limited McGraw-Hill Education, Inc. $6.6

7/13/15 Imedex, LLC Vesey Street Capital Partners, L.L.C. N/A

7/06/15 abv Training Ltd. CPL Training Ltd. N/A

7/02/15 Affinity Education Group Limited (ASX:AFJ) G8 Education Limited (ASX:GEM) 20.0

7/01/15 A Place To Grow Childcare, Schools In Arlington, Belmont and Concord Little Sprouts, Inc. N/A

6/29/15 SUCCESS Holdings Company Limited (TSE:6065) J-COM Holdings Co.,Ltd. (TSE:2462) 17.2

6/25/15 100% in Portfolio of Six Schools and Non-Controlling Interest in One School Nord Anglia Education, Inc. (NYSE:NORD) 559.0

6/15/15 First Class English Kuepa SA N/A

6/01/15 Nichibei English Service Co.,Ltd. KJ Holdings Co., Ltd. N/A

5/27/15 L-3 CTC Ltd. L-3 Communications Holdings Inc. (NYSE:LLL) 218.5

5/14/15 Atlas Driving Lessons Belt Up School of Motoring Ltd. N/A

4/09/15 Lynda.com LinkedIn Corporation 1.500.0

4/08/15 Abril Educação S.A. (BOVESPA:ABRE3) Tarpon Investimentos, Private Equity Arm 239.5

3/30/15 Nobel Learning Communities Inc. Investcorp Bank BSC 405.0

3/30/15 Lappan Verlag GmbH Bonnier AB N/A

3/20/15 ASIAMET Education Group Berhad (KLSE:AEGB) SMRT Holdings Berhad (KLSE:SMRT) 14.6

3/19/15 Endeavour Learning Group Study Group 57.2

2/20/15 Beijing Jinwenlang Technology Co Ltd H Capital 100.0

2/09/15 Abril Educacao SA Tarpon Investimentos SA 1,096.3

1/26/15 Whitney do Brasil Holding Ltda Gaec Educacao SA 424.5

1/16/15 Excelligence Learning Corporation Brentwood Associates N/A

1/08/15 ASIAMET Education Group Berhad (KLSE:AEGB) Creador 11.4

11/10/14 Global Knowledge Training LLC Rhone Capital LLC N/A

10/21/14 Relias Learning, LLC Bertelsmann SE & Co. KGaA N/A

10/08/14 QuickStart Intelligence Inc. 360 Training.com Inc. N/A

10/08/14 McKissock LP Quad-C N/A

10/06/14 Learning Question Education LLC Prepped & Polished LLC N/A

9/24/14 CentreLearn Solutions, LLC TargetSolutions, Inc. N/A

9/03/14 Cinergy Education EDPlus Holdings, LLC N/A

8/21/14 Noel-Levitz, Inc. RuffaloCODY, LLC N/A

8/20/14 Grace Hill Riverside Company N/A

8/19/14 Spear Education LLC Linden Capital Partners N/A

8/18/14 Smallsteps BV HIG Capital N/A

8/12/14 Majority stake in Fusion Education Group Laird Norton Company LLC N/A

8/11/14 RogenSi Worldwide Pty Ltd. TeleTech Holdings Inc. N/A

8/07/14 CardSmith LLC Blackboard Inc. N/A

7/30/14 Empowered Careers Inc. Qualcomm Technologies, Inc. N/A

7/29/14 Blendspace (NewSchools Venture Fund) Tangient, LLC (TSL Education Ltd.) N/A

7/08/14 Perceptis, LLC Blackboard Inc. N/A

7/03/14 Videotel Marine Asia Limited KVH Media Group Ltd. 48.9

7/01/14 SchoolChapters, Inc. Houghton Mifflin Harcourt N/A

6/25/14 Launch International, Inc. Corporate Visions, Inc. N/A

6/23/14 Lead Media Partners, LLC One on One Marketing, Inc. N/A

6/13/14 Vision for Education TES Global (aka TSL Education) N/A

6/12/14 Several Assets of K12 Inc. Pansophic Learning N/A

6/09/14 Smith System Driver Improvement Institute, Inc. Levine Leightman Capital Partners N/A

Source: Capital IQ. Note: Transactions chosen by Robert W. Baird & Co. Investment Banking for relevance to the education services subsectors. Excludes disclosed transactions under $20 million.

$11.8 $14.3 $9.3 $11.3

$16.7 $6.0

$8.5

302 367

408467

372 435

279

0

100

200

300

400

500

2009 2010 2011 2012 2013 2014 YTD 2015$0.0$3.0$6.0$9.0

$12.0$15.0$18.0

Number of Deals

Deal

Val

ue

Deal Value Number of Deals

Venture News


Fundraising News From Across the Education Sector Verbling Verbling, a marketplace that allows its users to find a language teacher, who can tailor a class to the student’s proficiency level and schedule, has raised $2.7 million in a series A round led by Bullpen Capital. (Venture Beat) BrightBytes BrightBytes, a software-as-a-service (SaaS) data-analytics company that measures the impact of technology in K-12 education, has raised $33 million as part of a series C financing. (Venture Beat) AltSchool AltSchool, a collaborative community of micro-schools that uses outstanding teachers, deep research, and innovative tools to offer a personalized, whole child learning experience for the next generation, raised $75.0 million to expand its high-tech primary schools. Andreessen Horowitz and Founders Fund led AltSchool’s newest funding round. Other investors include Mark Zuckerberg and Priscilla Chan’s donor-advised fund, Emerson Collective, First Round Capital, Learn Capital, Kleiner Perkins Caufield & Byers Senior Partner John Doerr, Harrison Metal, Jonathan Sackler, Omidyar Network, Adrian Aoun, and other individual investors. (WSJ) Udemy Udemy, a platform or marketplace for online learning, raised $65.0 million in Series D investment led by Stripes Group. The company intends to use the capital to make its offering better known among prospective teachers and students alike, and to ramp up the number of courses and features that the platform offers, especially to its international users. (WSJ) Front Row Education Front Row Education, which provides an adaptive, gamified, and data-driven math education program for K-8 students, raised $5.3 million in Series A funding by Amasia and joined by Harrison Metal, Baseline Ventures, and key existing investors. The funding brings the total raised by the organization to $6.6 million. (PEHUB) Knod Knod, a startup that collaborates with companies to provide education and real world experience to students, raised $6.2 million total funding via two rounds. Investors include Epic Ventures, which participated in the two previously undisclosed rounds, and Impact Investment Leaders. (PEHUB) Panorama Education Panorama Education, a provider of data analysis and feedback surveys for K-12 schools, secured $12 million in Series A funding from Owl Ventures and Spark Capital. The company plans to use the funds to grow the Boston-based team, especially in sales, research, engineering, and customer success. (PEHUB) Inkling Inkling, a company offering an end-to-end platform for mobile learning content, creating and selling interactive ebooks and other digital content, raised $15.0 million in form D financing. The investors included Tenaya Capital, Pearson Education, McGraw-Hill Education and others. (MTA) Wonder Workshop Wonder Workshop, a California-based company which develops programmable robots and other technology to help teach children to code, raised $6.9 million from new investor WI Harper Group and existing investors Madrona Venture Group, CRV, Maven Ventures, Bright Success Capital and angels. The company will use the funding to continue to expand into new markets, develop manufacturing and strategic business channels. The funding brings the company’s total funding to $15.9 million. (PEHUB) Coursera Coursera, an education technology company that partners with universities to offer courses online, raised $49.5 million in the first closing of Series C funding from New Enterprise Associates (NEA), Times Internet (TIL) and others. The investment by TIL is part of a larger partnership under which it will provide marketing, advertising and strategic support to build awareness about Coursera in India. (VC Circle)

http://venturebeat.com/2015/07/21/yc-backed-verbling-teaches-its-way-to-2-7m/

http://venturebeat.com/2015/07/21/brightbytes-raises-33m-to-help-schools-everywhere-gauge-the-impact-of-technology-in-classrooms/

http://blogs.wsj.com/venturecapital/2015/05/04/altschool-raises-75-million-to-expand-its-high-tech-primary-schools/

http://blogs.wsj.com/venturecapital/2015/06/02/udemy-raises-65-million-to-become-netflix-for-education/

https://www.pehub.com/2015/08/front-row-education-nabs-5-3-mln-series-a/

https://www.pehub.com/2015/05/edtech-company-knod-announces-funding/

https://www.pehub.com/2015/08/panorama-education-snags-12-mln-series-a/

http://www.martechadvisor.com/content-marketing/inkling-systems-releases-form-d-announcing-15-million-funding/

https://www.pehub.com/2015/05/edtech-company-wonder-workshop-raises-6-9-mln-from-wi-harper-madrona-crv/

http://www.vccircle.com/news/technology/2015/08/25/coursera-raises-495m-nea-times-internet-others

Company Spotlight


Dzana Homan

Chief Executive Officer

Business Description

School of Rock is the leader in performance-based music education focusing on kids age 7-18. Through a unique performance-based approach, students are guided from the lesson room to the stage where they play real shows at authentic venues with their peers. School of Rock’s collaborative environment inspires students to learn and excel and instills a confidence they carry with them for the rest of their lives. With more than 165 locations in nine countries, School of Rock inspires the world to rock on stage and in life.

Ownership School of Rock is majority owned by Sterling Partners.

Interview with Dzana Homan, CEO of School of Rock by Dan Alfe of Baird Baird: Why is SoR different than traditional music education? DH: Just about everything! At our core we are a group of musicians that strive to bring fun back to music education. While our students are given top-notch individual instruction, we push our students to develop a holistic understanding of the art through performance. Using a collaborative, team-based approach fosters a motivational environment which allows our students to grow as musicians and team players. Our performance approach gets students to be “believers” that they can really do it. Additionally, we’ve had mega stars such as Slash, Alice Cooper, Peter Frampton and many others offer guest lectures and provide insight into what it takes to be an elite artist. We have found that not only are these star professionals excellent instructors, but they help give kids perspective of the attributes needed to be great. Encouraging excellence is a common theme in all that we do here at School of Rock. Baird: How do you improve student performance and how do you measure outcomes? DH: Our goal is simple: we are here to increase confidence, enhance concentration and ultimately grow a child’s enthusiasm for learning. We believe setting our students up for success and then fostering a supportive environment leads to great outcomes. For instance, all students are encouraged to play music as early as possible – after all, that’s what they are here to do! While we don’t spend an inordinate amount of time teaching each note, we chose songs that emphasize the core foundation of music necessary for each instrument. If the child is a guitarist, for instance, we will work on a few songs from the Ramones to craft their power cord shapes. This all leads back to our core principles about making music fun again. We have found that students stay engaged when they are participating in the process.

Company Spotlight


Lastly, the integration of personal mentorship through one-on-one lessons and team building exercises like putting on a rock concert allow us to monitor the progress of each musician over the course of time. Many of our students are going through an extremely crucial point in their developmental process and it’s important that we strengthen their interpersonal skills in addition to their musical talents. Baird: What is your strategy – where will growth come from? DH: There are lots of potential growth drivers for us: more collaboration with TV networks like VH1 and MTV, talent shows like The Voice and American Idol, retailers like Guitar Center, music industry leaders like Fender, expanding online or streaming content, interaction and integration with talent agencies – even representing young talent ourselves – all are potentially fertile areas for us. But, right now FOCUS is everything. Cool stuff, but nothing else we could do matches the predictable, replicable, multi-unit economics of continuing to roll out new centers across the U.S. Lots of white space for us to greenfield new centers. Given my background previously as CEO of Huntington Learning Centers and COO of Goddard, I know this “playbook”. And we’ve made significant investments over the past year making sure our infrastructure can support a significantly larger network of schools. There is a network effect too, the bigger we get and more pervasive our brand, the more these ancillary initiatives become viable. Baird: What are your expansion plans? DH: Great question. We currently serve over 20,000 students through 168 locations across 9 countries and are looking to expand domestically and internationally. The Company has had tremendous success this year opening 30 new locations and plans to open an additional 36 schools in 2016. The attractive, predictable multi-unit economics at School of Rock appeals to a diverse group of investors and we have had strong interest from future franchisees. Baird: What do you foresee as the industry outlook for enrichment services such as yours? DH: I think the industry outlook is fantastic. I believe we’ve found a niche within the enrichment or supplemental education market that has been extremely neglected as of late. The pure-play supplemental education market is rather saturated with a number of players competing for afterschool STEM-focused students. Catering to an elective such as music has given us two advantages: 1) we tend to be the only option offering scale and breadth of product offering and 2) our students actually want to be with us each week! We have an emotional buy-in from both students and parents which makes for a dynamic recipe for success!

Baird’s Education Services Expertise


SELECT M&A TRANSACTIONS

SELECT EQUITY TRANSACTIONS

_____________________ Note: Selected Baird transactions. Please visit http://www.rwbaird.com/investment-banking/ for a complete listing of transactions. * indicates transactions completed by Baird team members prior to employment at Baird.

* * * *

* * * * * *

Upcoming Education Industry Events


International Congress on Education, Innovation and Learning Technologies

Sep 21-23. Granada, Spain

The event has the objective of creating an international forum for academics, researchers and scientists from worldwide to discuss worldwide results and proposals regarding to the soundest issues related to Education, Innovation and Learning Technologies. It will include the participation of renowned keynote speakers, oral presentations, posters sessions and technical conferences related to the topics dealt with in the Scientific Program as well as an attractive social and cultural program.

Learning Without Borders Conference

Sep 22-24. Minneapolis, MN

The conference will cover perspectives on learning-centered teaching practices, curricular activities, assessment methods related to global and intercultural learning, internationalization of the curriculum, and mobile learning technologies.

2015 International Conference on Leadership and Management - ICLM 2015

Sep 24-25. Rio de Janeiro, Brazil

Aims to bring together researchers, scientists, engineers, and scholar students to exchange and share their experiences, new ideas, and research results about all aspects of Leadership and Management, and discuss the practical challenges encountered and the solutions adopted.

2nd Global Science, Technology, Engineering and Math (STEM) Education and Innovation Conference

Sep 24-25. Saskatchewan, Canada

The conference invites people in the science, technology, engineering and mathematics education sector for a two day conference exploring the topic of "Skilling a Nation's Future - Alligning STEM Education to a State's Future Human Resource Needs".

The IRES-2nd International Conference on E-Education, E-Business, E-Management and E-Learning (IC4E)

Sep 27. Prague, Czech Republic

The idea of the conference is for the scientists, scholars, engineers and students from the Universities all around the world and the industry to present ongoing research activities, and hence to foster research relations between the Universities and the industry. This conference provides opportunities for the delegates to exchange new ideas and application experiences face to face, to establish business or research relations and to find global partners for future collaboration.

Refugee Education Conference

Oct 1–2. Auckland, New Zealand

This conference hosted by AUT and the MoE will focus predominantly on education for refugee background learners. The aim is to bring together practitioners and academics to share best practice and new directions in teaching & learning.

International Conference on Arts, Education and Social Science (ICAESS 2015)

Oct 9–10. Chiang Mai, Thailand

Upcoming Education Industry Events


This conference will provide a platform for researchers, engineers, academicians as well as industrial professionals from all over the world to present their research results and development activities in Arts, Education and Social Science.

World Congress on Education (WCE-2015)

Oct 19–21. Dublin, Ireland

The WCE is an international refereed conference dedicated to the advancement of the theory and practices in education. The WCE promotes collaborative excellence between academicians and professionals from Education.

ACE2015 - The Seventh Asian Conference on Education

Oct 21–25. Kobe, Japan

This international, intercultural & interdisciplinary event, welcomes participants from all over the world to discuss the challenges faced in education currently.

The IRES -4th International Conference on E-Education, E-Business, E-Management and E-Learning (IC4E)

Nov 7. Paris, France

The IRES -4th International Conference on E-Education, E-Business, E-Management and E-Learning (IC4E) aimed at presenting current research being carried out in that area.

2015 Fall Global Conference on Education

Nov 13–15. Los Angeles, U.S.

The Global Conference on Education is an international refereed conference dedicated to the advancement of the theory and practices in education. The GCE promotes collaborative excellence between academicians and professionals.

Wholeness in Industry, Education, and Health

Nov 18–19. Silang, Philippines

The AIIAS International Conference is of particular interest to academics, researchers, educators, and practitioners from any discipline who are interested in current research and best practices in the fields of Public Health, Education, and Business

8th International Conference on Science, Mathematics and Technology Education

Nov 21–24. Jakarta, Indonesia

The 8th SMTE provides an international forum for researchers and practitioners to report the latest innovations, summarize the state-of-the-art, and exchange ideas and advances in all aspects of Science, Mathematics and Technology Education.

Integrated South East Asian Research Conference on Higher Education

Nov 27–28. Palawan, Philippines

ISEARCHEd will serve as a platform for international exchange of experience, ideas, opinions, collaborations and cooperation among academicians, educators, industry researchers and other practitioners from south east Asia and neighbouring countries.

Education Current Market Multiples


Current Market Operating Statistics ($ in millions, except per share values)

_____________________ Source: Information provided by Capital IQ. As of August 31, 2015. (1) Vocation Limited reports on strictly an annual 6/30, as such 2015E estimates were used for LTM statistics.

Market Price % of 2015EValue of Enterprise Per Share YTD Share 52-Week LTM Results Revenue EBITDA

Company Name Equity Value 8/31/2015 Price Change High Revenue EBITDA EBIT Net Income Growth GrowthPrimary & Secondary EducationBenesse Holdings, Inc. $2,553.4 $1,769.5 $26.5 (11.1% ) 79.9% $3,598.6 $370.0 $197.9 $27.2 (3.8% ) (24.1% )Bright Horizons Family Solutions, Inc. 3,708.2 4,549.4 61.1 34.7% 92.5% 1,393.6 242.7 165.6 83.4 8.1% 15.0%BrightPath Early Learning Inc. 32.9 50.9 0.3 (11.6% ) 78.3% 40.4 4.1 1.5 0.1 (8.9% ) 9.5%Educomp Solutions Limited 20.0 (5.1) 0.2 (58.5% ) 29.1% 81.5 (5.3) (13.2) (120.8) N/A N/AK12, Inc. 506.4 349.8 13.2 13.0% 69.9% 948.3 64.4 34.9 21.2 (2.0% ) (17.1% )New Oriental Education & Technology Group Inc. 3,214.9 2,014.6 20.5 0.3% 75.4% 1,246.8 195.2 151.4 190.9 13.9% (19.4% )Nord Anglia Education, Inc. 2,138.0 2,665.7 20.5 5.3% 75.6% 552.4 128.8 87.3 32.2 34.6% 30.2%Scholastic Corporation 1,442.6 942.5 43.2 20.3% 93.4% 1,635.8 89.3 58.7 28.5 (9.6% ) 23.8%Xueda Education Group 320.7 110.5 5.1 108.6% 98.3% 339.0 (0.6) (13.7) (14.8) 3.4% N/A

Median 5.3% 78.3% 0.7% 9.5%Mean 11.2% 76.9% 4.5% 2.6%Higher EducationAmerican Public Education, Inc. $363.5 $259.7 $21.9 (39.3% ) 58.5% $341.7 $76.9 $59.3 $36.5 (5.3% ) (9.8% )Apollo Education Group, Inc. 1,196.7 530.9 11.1 (66.6% ) 32.2% 2,688.8 364.8 223.9 126.3 (13.6% ) (34.2% )Bridgepoint Education, Inc. 369.5 94.1 8.1 (27.1% ) 63.2% 599.5 51.3 29.4 18.3 (12.4% ) (11.8% )Capella Education Co. 588.3 458.0 48.8 (34.6% ) 62.6% 428.6 75.0 67.4 40.5 2.4% 3.3%Career Education Corp. 252.1 68.8 3.7 (45.4% ) 52.3% 714.1 (20.4) (51.0) (61.3) (26.6% ) N/ADeVry Education Group Inc. 1,661.5 1,318.1 26.2 (40.9% ) 52.7% 1,909.9 292.2 201.6 161.1 (3.2% ) (8.0% )Education Management Corporation 11.3 1,255.3 0.1 (43.8% ) 6.3% 2,272.7 219.5 85.3 (319.2) N/A N/AEstácio Participações S.A 1,064.3 1,221.4 3.4 (57.9% ) 41.6% 874.6 194.9 163.8 148.9 (8.6% ) (4.7% )Grand Canyon Education, Inc. 1,742.3 1,691.9 37.0 (18.9% ) 71.1% 733.9 229.6 197.7 122.1 12.6% 14.5%ITT Educational Services Inc. 89.8 222.5 3.8 (59.3% ) 27.0% 930.0 110.7 85.2 29.2 (10.0% ) 12.1%Kroton Educacional S.A. 3,883.3 4,045.8 2.4 (56.3% ) 47.2% 1,653.4 506.2 396.8 387.3 (12.9% ) (10.6% )Lincoln Educational Services Corporation 10.4 46.5 0.4 (83.8% ) 11.3% 318.5 16.9 0.4 (17.2) (9.1% ) 5.6%National American University Holdings, Inc. 69.8 54.4 2.8 (0.7% ) 78.9% 117.9 16.2 10.0 5.7 N/A N/ANavitas Limited 1,064.3 1,088.9 2.8 (32.1% ) 70.9% 754.5 127.2 105.6 65.0 (8.8% ) (8.6% )Strayer Education Inc. 576.1 496.4 52.2 (28.1% ) 65.5% 438.5 91.7 72.6 41.2 (2.4% ) (18.9% )Universal Technical Institute, Inc. 107.7 84.9 4.5 (54.6% ) 37.3% 367.3 23.7 8.2 2.4 (2.9% ) (27.5% )

Median (42.3%) 52.5% (8.7%) (8.6%)Mean (43.1%) 48.7% (7.2%) (7.6%)Professional Education & TrainingChina Distance Education Holdings Limited $376.5 $283.5 $10.5 (33.6% ) 47.7% $107.9 $28.0 $25.8 $24.5 12.1% 50.0%Franklin Covey Co. 277.1 289.7 16.7 (14.6% ) 79.9% 210.6 27.5 19.8 15.2 4.8% (0.8% )GP Strategies Corp. 421.4 469.0 24.5 (25.7% ) 64.7% 490.0 46.9 38.0 23.3 (1.2% ) (14.7% )Learning Tree International Inc. 12.8 (5.9) 1.0 (45.8% ) 38.5% 110.5 (4.8) (10.1) (7.5) N/A N/AVocation Limited 4.0 4.6 0.1 (64.6% ) 2.7% 25.6 (21.7) (26.2) (72.7) (50.2% ) N/A

Median (33.6%) 47.7% 1.8% (0.8%)Mean (36.9%) 46.7% (8.7%) 11.5%Education Technology2U, Inc. $2,121.6 $2,033.4 $35.0 79.5% 88.3% $129.0 ($25.0) ($26.0) ($26.5) 35.1% (43.7% )Chegg, Inc. 450.8 388.3 7.4 6.1% 84.0% 317.9 17.4 (54.6) (61.5) 0.2% N/AQuinStreet, Inc. 247.5 202.1 5.5 (8.3% ) 80.5% 282.1 (2.7) (19.2) (22.0) 6.6% N/ARosetta Stone, Inc. 151.5 124.8 7.0 (29.6% ) 62.1% 253.6 (30.3) (40.6) (49.3) (16.8% ) N/ASmart Technologies Inc. 89.3 213.3 0.7 (40.0% ) 44.5% 454.2 67.5 52.2 12.2 (16.4% ) (44.1% )Sonic Foundry, Inc. 29.5 32.5 6.8 (14.4% ) 61.5% 35.9 (2.6) (4.5) (4.6) N/A N/ATribal Group plc 193.9 230.2 2.1 (16.4% ) 71.3% 175.6 18.9 14.7 2.9 (5.2% ) 6.6%

Median (14.4%) 71.3% (2.5%) (43.7%)Mean (3.3%) 70.3% 0.6% (27.1%)Diversified Education & PublishingHoughton Mifflin Harcourt Company $3,063.5 $3,540.1 $22.6 9.7% 83.2% $1,359.0 $81.5 ($97.7) ($138.4) 9.1% 0.7%Informa plc 5,765.1 7,202.1 8.9 24.3% 95.7% 1,770.8 544.5 388.5 161.9 6.4% 5.5%John Wiley & Sons Inc. 3,020.7 3,502.3 51.6 (12.5% ) 78.7% 1,807.5 337.9 265.4 201.0 (1.8% ) (5.6% )Pearson plc 14,107.0 17,904.8 17.4 (3.7% ) 74.7% 7,486.8 873.1 558.4 402.8 1.9% 9.5%Wilmington plc 341.7 386.9 4.0 11.5% N/A 149.5 31.9 19.3 12.2 6.6% 7.9%Wolters Kluwer NV 9,233.7 11,545.0 31.6 4.1% 88.4% 4,325.5 1,089.7 700.5 494.7 6.2% 8.1%

Median 6.9% 83.2% 6.3% 6.7%Mean 5.6% 84.1% 4.7% 4.4%Overall Median (18.9%) 67.7% (2.2%) (2.8%)Overall Mean (17.7%) 62.3% (1.8%) (3.2%)

(1)

Education Current Market Multiples


Current Market Valuations

_____________________ Source: Capital IQ as of August 31, 2015. (1) Vocation Limited reports on strictly an annual 6/30, as such 2015E estimates were used for LTM statistics

EV / Revenue EV / EBITDA EV / EBIT Price / EarningsCompany Name LTM 2015E 2016P LTM 2015E 2016P LTM 2015E 2016P LTM 2015E 2016P

Primary & Secondary EducationBenesse Holdings, Inc. 0.5x 0.5x 0.4x 4.8x 5.5x 5.0x 8.9x N/M 10.9x N/M N/M 36.0xBright Horizons Family Solutions, Inc. 3.3 3.1 2.8 18.7 16.6 14.8 27.5 25.1x 21.9 47.7x 33.6x 29.2BrightPath Early Learning Inc. 1.3 1.3 1.1 12.5 10.2 8.3 33.8 N/M N/A N/M N/M 24.0Educomp Solutions Limited N/M N/A N/A N/M N/A N/A N/M N/A N/A N/M 1.0 N/AK12, Inc. 0.4 0.4 0.4 5.4 3.7 3.3 10.0 10.5 14.2 23.5 21.8 27.7New Oriental Education & Technology Group Inc. 1.6 1.5 1.3 10.3 10.7 8.5 13.3 13.1 9.7 16.9 15.4 12.0Nord Anglia Education, Inc. 4.8 4.0 2.9 20.7 15.8 10.8 30.5 27.0 16.6 62.4 34.5 22.0Scholastic Corporation 0.6 0.6 0.6 10.6 7.7 7.2 16.1 15.7 N/A 50.7 47.5 25.5Xueda Education Group 0.3 0.3 0.3 N/M N/A N/A N/M N/M 10.3 N/M 46.5 20.4

Median 0.9x 0.9x 0.8x 10.6x 10.2x 8.3x 16.1x 15.7x 12.5x 47.7x 33.6x 24.8xMean 1.6 1.4 1.2 11.9 10.0 8.3 20.0 18.3 13.9 40.2 28.6 24.6Higher EducationAmerican Public Education, Inc. 0.8x 0.8x 0.8x 3.4x 3.6x 3.5x 4.4x 5.0x 5.0x 10.4x 11.7x 11.7xApollo Education Group, Inc. 0.2 0.2 0.2 1.5 1.7 1.9 2.4 2.8 3.3 9.6 11.0 13.1Bridgepoint Education, Inc. 0.2 0.2 0.2 1.8 2.4 2.2 3.2 7.8 5.5 20.3 41.3 38.3Capella Education Co. 1.1 1.1 1.0 6.1 4.9 4.6 6.8 6.7 6.2 15.0 14.7 13.6Career Education Corp. 0.1 0.1 0.1 N/M N/M N/M N/M N/M N/M N/M N/M N/MDeVry Education Group Inc. 0.7 0.7 0.7 4.5 4.5 4.1 6.5 6.9 6.1 10.6 11.2 9.8Education Management Corporation 0.6 N/A N/A 5.7 N/A N/A 14.7 N/A N/A N/M N/A N/AEstácio Participações S.A 1.4 1.5 1.3 6.3 6.4 5.2 7.5 8.1 6.4 7.3 8.0 6.5Grand Canyon Education, Inc. 2.3 2.2 2.0 7.4 6.8 6.0 8.6 8.2 7.3 14.3 13.6 12.5ITT Educational Services Inc. 0.2 0.3 0.3 2.0 2.5 4.0 2.6 3.2 4.1 3.1 6.2 N/MKroton Educacional S.A. 2.4 2.8 2.5 8.0 7.6 6.6 10.2 8.7 7.7 8.4 9.2 8.0Lincoln Educational Services Corporation 0.1 0.2 0.2 2.7 4.9 3.9 N/M N/M N/M N/M N/M N/MNational American University Holdings, Inc. 0.5 N/A N/A 3.4 N/A N/A 5.4 N/A N/A 12.3 N/A N/ANavitas Limited 1.4 1.6 1.5 8.6 9.5 9.7 10.3 11.5 11.8 16.4 16.4 16.7Strayer Education Inc. 1.1 1.1 1.1 5.4 5.8 5.3 6.8 7.4 6.7 13.6 14.3 12.5Universal Technical Institute, Inc. 0.2 0.2 0.2 3.6 4.1 2.4 10.4 23.4 11.6 45.2 N/M 20.8

Median 0.6x 0.7x 0.8x 4.5x 4.9x 4.1x 6.8x 7.6x 6.3x 12.3x 11.7x 12.5xMean 0.8 0.9 0.9 4.7 5.0 4.6 7.1 8.3 6.8 14.3 14.3 14.9Professional Education & TrainingChina Distance Education Holdings Limited 2.6x 2.6x 1.9x 10.1x 8.2x 5.8x 11.0x 12.1x 6.9x 15.4x 18.6x 10.6xFranklin Covey Co. 1.4 1.3 1.2 10.5 8.4 N/A 14.6 12.0 9.0 18.7 20.5 N/AGP Strategies Corp. 1.0 0.9 0.9 10.0 10.4 8.6 12.3 12.6 10.1 18.8 19.8 15.3Learning Tree International Inc. N/M N/A N/A N/M N/A N/A N/M N/A N/A N/M N/A N/AVocation Limited 0.1 0.1 0.5 N/M N/M 6.1 N/M N/M N/M N/M N/M 11.0

Median 1.2x 1.1x 1.0x 10.1x 8.4x 6.1x 12.3x 12.1x 9.0x 18.7x 19.8x 11.0xMean 1.3 1.2 1.1 10.2 9.0 6.9 12.6 12.2 8.7 17.6 19.6 12.3Education Technology2U, Inc. N/M N/M 7.1x N/M N/M N/M N/M N/M N/M N/M N/M N/MChegg, Inc. 1.2x 1.3x 2.1 22.3x N/M 20.9x N/M N/M 35.8x N/M N/M 30.3xQuinStreet, Inc. 0.7 0.7 0.6 N/M 16.0x N/A N/M N/M N/M N/M N/M N/MRosetta Stone, Inc. 0.5 0.6 0.6 N/M N/M 17.0 N/M N/M N/M N/M N/M N/MSmart Technologies Inc. 0.5 0.5 0.4 3.2 12.1 4.8 4.1x N/M 9.5 7.5x N/M 15.2Sonic Foundry, Inc. 0.9 N/A N/A N/M N/A N/A N/M N/A N/A N/M N/A N/ATribal Group plc 1.3 1.2 1.2 12.2 7.0 6.6 15.7 9.4x 8.7 67.5 11.3x 10.5

Median 0.8x 0.7x 0.9x 12.2x 12.1x 11.8x 9.9x 9.4x 9.5x 37.5x 11.3x 15.2xMean 0.9 0.8 2.0 12.5 11.7 12.3 9.9 9.4 18.0 37.5 11.3 18.6Diversified Education & PublishingHoughton Mifflin Harcourt Company 2.6x 2.3x 2.2x N/M 12.6x 11.1x N/M N/M N/M N/M N/M N/MInforma plc 4.1 3.9 3.7 13.2x 12.3 11.6 18.5x 13.1x 12.8x 34.7x 14.2x 13.5xJohn Wiley & Sons Inc. 1.9 1.9 1.8 10.4 8.7 7.8 13.2 13.9 12.3 15.3 16.9 15.9Pearson plc 2.4 2.3 2.3 20.5 12.5 11.5 32.1 14.7 13.8 35.2 15.1 13.8Wilmington plc 2.6 2.5 2.4 12.1 10.8 9.9 20.0 12.2 11.1 28.5 15.5 13.6Wolters Kluwer NV 2.7 2.5 2.5 10.6 9.9 9.5 16.5 13.1 12.6 19.2 15.3 14.2

Median 2.6x 2.4x 2.4x 12.1x 11.6x 10.5x 18.5x 13.1x 12.6x 28.5x 15.3x 13.8xMean 2.7 2.6 2.5 13.4 11.1 10.2 20.1 13.4 12.5 26.5 15.4 14.2Overall Median 1.0x 1.1x 1.1x 7.7x 8.0x 6.6x 10.4x 11.7x 9.6x 16.6x 15.3x 14.0xOverall Mean 1.3 1.3 1.4 8.7 8.2 7.5 12.8 11.7 10.6 23.2 18.7 17.5

(1)

Education Current Margins and Select Other Ratios


Current Market Operating Ratios

_____________________ Source: Information provided by Capital IQ. As of August 31, 2015.

LTM Margins DuPont AnalysisGross Profit Asset Equity Return on Return on Debt to: Dividend

Company Margin EBITDA EBIT Margin Turnover Multiplier Equity Capital Total Cap. EBITDA YieldPrimary & Secondary EducationBenesse Holdings, Inc. 44.0% 10.3% 5.5% 0.8% 1.0x 2.4x 1.7% 5.6% 13.8% 0.7x 3.0%Bright Horizons Family Solutions, Inc. 24.1% 17.4% 11.9% 6.0% 0.6 2.9 11.2% 7.7% 55.3% 3.8 0.0%BrightPath Early Learning Inc. 44.4% 10.0% 3.7% 0.1% 0.6 1.6 0.0 2.2% 31.6% 4.9 0.0%Educomp Solutions Limited 38.7% N/M N/M N/M 0.0 0.0 N/M N/M 0.0% N/M 0.0%K12, Inc. 36.8% 6.8% 3.7% 2.2% 1.3 1.3 3.9% 5.0% 5.2% 0.5 0.0%New Oriental Education & Technology Group Inc. 57.8% 15.7% 12.1% 15.3% 0.7 1.6 17.1% 7.8% 0.0% 0.0 2.0%Nord Anglia Education, Inc. 51.5% 23.3% 15.8% 5.8% 0.4 N/M N/M 6.6% 73.3% 5.2 0.0%Scholastic Corporation 53.6% 5.5% 3.6% 1.7% 1.0 1.5 2.6% 3.2% 0.6% 0.1 1.4%Xueda Education Group 25.2% N/M N/M N/M 1.2 2.5 N/M (4.7% ) 0.0% N/M 3.1%

Median 44.0% 10.3% 5.5% 2.2% 0.7x 1.6x 3.2% 5.3% 5.2% 0.7x 0.0%Mean 41.8% 12.7% 8.0% 4.6% 0.8 1.7 6.1% 4.2% 20.0% 2.2 1.1%Higher EducationAmerican Public Education, Inc. 64.2% 22.5% 17.4% 10.7% 1.2x 1.3x 16.2% 25.0% 0.0% 0.0x 0.0%Apollo Education Group, Inc. 53.9% 13.6% 8.3% 4.7% 1.1 1.9 9.8% 9.6% 4.5% 0.2 0.0%Bridgepoint Education, Inc. 49.7% 8.6% 4.9% 3.1% 1.1 1.5 5.0% 5.2% 0.0% 0.0 0.0%Capella Education Co. 49.7% 17.5% 15.7% 9.4% 1.7 1.3 21.1% 25.2% 0.0% 0.0 3.0%Career Education Corp. 78.9% N/M N/M N/M 1.2 2.1 N/M (10.4% ) 0.0% N/M 0.0%DeVry Education Group Inc. 47.6% 15.3% 10.6% 8.4% 0.9 1.3 10.3% 9.7% 0.0% 0.0 1.4%Education Management Corporation 39.8% 9.7% 3.8% N/M 1.1 N/M N/M 4.6% 123.2% 6.9 0.0%Estácio Participações S.A 42.3% 22.3% 18.7% 17.0% 0.9 1.5 22.8% 14.0% 23.6% 1.3 2.5%Grand Canyon Education, Inc. 43.3% 31.3% 26.9% 16.6% 1.0 1.5 24.5% 24.1% 13.4% 0.4 0.0%ITT Educational Services Inc. 57.7% 11.9% 9.2% 3.1% 1.3 4.6 0.2 13.0% 62.4% 2.3 0.0%Kroton Educacional S.A. 54.6% 30.6% 24.0% 23.4% 0.5 1.4 15.5% 7.6% 6.8% 0.6 22.8%Lincoln Educational Services Corporation 50.6% 5.3% 0.1% N/M 1.5 2.5 N/M 0.2% 37.0% 2.4 0.0%National American University Holdings, Inc. 70.7% 13.7% 8.5% 4.8% 1.3 1.6 10.7% 11.6% 18.7% 0.7 6.5%Navitas Limited 75.9% 16.9% 14.0% 8.6% 1.3 3.8 42.1% 17.6% 36.9% 0.7 4.8%Strayer Education Inc. 46.1% 20.9% 16.6% 9.4% 1.4 2.8 0.4 22.0% 49.0% 1.3 0.0%Universal Technical Institute, Inc. 57.3% 6.4% 2.2% 0.7% 1.4 2.1 1.9% 3.1% 20.9% 1.4 9.0%

Median 52.3% 15.3% 10.6% 8.6% 1.2x 1.6x 16.2% 10.7% 16.0% 0.7x 0.0%Mean 55.1% 16.4% 12.1% 9.2% 1.2 2.1 18.1% 11.4% 24.8% 1.2 3.1%Professional Education & TrainingChina Distance Education Holdings Limited 59.6% 26.0% 23.9% 22.7% 0.6x 2.2x 30.9% 14.6% 16.9% 0.6x 7.6%Franklin Covey Co. 65.7% 13.1% 9.4% 7.2% 1.1 1.5 12.4% 10.7% 17.6% 1.0 0.0%GP Strategies Corp. 17.5% 9.6% 7.8% 4.8% 1.6 1.9 14.1% 12.8% 27.1% 1.3 0.0%Learning Tree International Inc. 42.1% N/M N/M N/M 2.1 N/M N/M (22.5% ) 0.0% N/M 0.0%Vocation Limited N/M N/M N/M N/M 0.2 N/M N/M N/M N/M N/M 0.0%

Median 50.9% 13.1% 9.4% 7.2% 1.1x 1.9x 14.1% 11.8% 17.3% 1.0x 0.0%Mean 46.2% 16.2% 13.7% 11.5% 1.1 1.9 19.2% 3.9% 15.4% 0.9 1.5%Education Technology2U, Inc. 77.5% N/M N/M N/M 1.0x 1.5x N/M (21.1% ) 0.0% N/M 0.0%Chegg, Inc. 37.7% 5.5% N/M N/M 1.1 1.2 N/M (19.0% ) 0.0% 0.0x 0.0%QuinStreet, Inc. 10.7% N/M N/M N/M 1.2 1.5 N/M (9.3% ) 10.0% N/M 0.0%Rosetta Stone, Inc. 80.6% N/M N/M N/M 1.0 N/M N/M (18.5% ) 7.4% N/M 0.0%Smart Technologies Inc. 45.2% 14.9% 11.5% 2.7% 1.5 N/M N/M 19.9% 97.7% 2.4 0.0%Sonic Foundry, Inc. 70.4% N/M N/M N/M 1.0 3.8 N/M (14.6% ) 39.4% N/M 0.0%Tribal Group plc 39.5% 10.8% 8.4% 1.6% 0.8 3.0 3.9% 6.9% 37.7% 2.3 1.3%

Median 45.2% 10.8% 9.9% 2.2% 1.0x 1.5x 3.9% (14.6%) 10.0% 2.3x 0.0%Mean 51.6% 10.4% 9.9% 2.2% 1.1 2.2 3.9% (8.0%) 27.4% 1.6 0.2%Diversified Education & PublishingHoughton Mifflin Harcourt Company 47.2% 6.0% N/M N/M 0.4x 2.3x N/M (3.0% ) 35.8% 9.8x 0.0%Informa plc 40.4% 30.7% 21.9% 9.1% 0.4 2.4 9.2% 8.4% 43.6% 2.7 3.3%John Wiley & Sons Inc. 72.6% 18.7% 14.7% 11.1% 0.6 2.8 19.0% 8.8% 44.1% 2.5 2.3%Pearson plc 54.3% 11.7% 7.5% 5.4% 0.5 2.0 5.0% 3.5% 34.1% 5.0 4.5%Wilmington plc 20.3% 21.4% 12.9% 8.1% 0.6 2.6 13.9% 8.8% 40.7% 1.9 2.9%Wolters Kluwer NV 68.4% 25.2% 16.2% 11.4% 0.6 3.4 22.0% 8.5% 54.0% 2.6 1.3%

Median 50.8% 20.0% 14.7% 9.1% 0.5x 2.5x 13.9% 8.4% 42.1% 2.7x 2.6%Mean 50.5% 18.9% 14.6% 9.0% 0.5 2.6 13.8% 5.8% 42.0% 4.1 2.4%Median 49.7% 14.3% 11.0% 6.6% 1.0x 1.9x 13.2% 7.6% 18.2% 1.3x 0.0%Mean 50.2% 15.6% 11.6% 7.9% 1.0 2.1 14.4% 5.1% 25.8% 1.9 2.0%

Baird’s Education Services Team


ANDREW SNOW – MANAGING DIRECTOR, HEAD OF EDUCATION SERVICES

PETER KIES – MANAGING DIRECTOR, HEAD OF TECHNOLOGY & SERVICES

DANIEL ALFE – DIRECTOR, EDUCATION SERVICES

T: +1.312.609.4972 E: [email protected]



DAVID SILVER – MANAGING DIRECTOR, HEAD OF EUROPEAN INVESTMENT BANKING

JONATHAN HARRISON – MANAGING DIRECTOR, BUSINESS SERVICES

MARTIN LUEN – DIRECTOR, BUSINESS SERVICES




ANTHONY SIU – MANAGING DIRECTOR, HEAD OF ASIA INVESTMENT BANKING

SATOSHI MATSUMOTO – MANAGING DIRECTOR, DIRECTOR OF JAPAN M&A



mailto:[email protected]

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Glossary of Terms & Other Important Information


EBITDA – Earnings before interest, taxes, depreciation & amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement.

EBIT – Earnings before income and taxes. A measure of a company's earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes.

Enterprise Value (EV) – Market value of equity plus debt less cash. A measure of what the market believes a company's ongoing operations are worth.

GDP – Gross Domestic Product – The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.

LTM – Last twelve months. Time period used when referencing a financial statistic.

P/E – Price per share divided by earnings per share. The most common measure of how expensive a stock is.

The S&P 500 – An unmanaged common stock index commonly used to measure and report common stock performance.

E – Represents estimates of a company’s financial performance for the next fiscal period.

P – Represents the projections of a company’s financial performance after the next fiscal period.

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