October 2017
Volume XII, Issue 4
Strayer Education to Merge with Capella Education 
Strayer Education (NASDAQ:STRA), a for-profit post-secondary provider strong in undergraduate programs, announced that it will merge with Capella Education (NASDAQ: CPLA), an online for-profit post-secondary provider strong in graduate degree programs. The $1.9 billion deal will be structured as a stock-for-stock merger, with each Capella shareholder receiving .875 Strayer shares for each Capella share. Capella, which generated $429.4 million of revenue in 2016, had a market capitalization of $764.5 million prior to the announcement of the deal. Combined, the company will serve 80,000 students
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Apollo Global Management Acquires West Corporation
Apollo Global Management, a New York-based private equity firm, completed its acquisition of West Corporation (NASDAQ:WSTC), a provider of communication and network infrastructure services, for nearly $5.2 billion by acquiring all the outstanding shares of West Corporation's common stock for $23.50 per share. West Corporation had $2.3 billion of revenue in 2016. The company established its presence in the education market when it acquired SchoolMessenger, a notification system for schools, in April 2014 for $76.5 million.
Hoonuit Acquires Whitewater Learning    
Hoonuit, a provider of data analytics for educators, acquired Whitewater Learning, a provider of professional development content. Through its partnership with the University of North Dakota, Whitewater Learning offers university accredited courses online. Financial terms of the transaction were not disclosed
Chegg Acquires Cogeon
Chegg (NYSE: CHGG), an online textbook rental company, acquired Cogeon, a Germany-based developer of math applications, for approximately $15 million in an all-cash deal. Cogeon had previously raised €1.2 million through three rounds of funding. Cogeon is best known for its math app called Math 42, which is used by over two million students worldwide to learn step by step solutions to math problems
Fuel Education Acquires Big Universe
Big Universe, the developer of an online platform that provides literacy tools, was acquired by Fuel Education, a subsidiary of K12 Inc. (NYSE: LRN) that provides digital curriculum and development services. Big Universe, which has a library of 11,000 digital books at a variety of reading levels, is used by over 700,000 students in more than 900 schools. Financial terms of the transaction were not disclosed
Campus Labs Acquires Academic Management Systems
Campus Labs, a data analytics platform for institutions of higher education, acquired Academic Management Systems, a company best known for its course evaluation software called CoursEval. Campus Labs is a subsidiary of Leeds Equity, which bought the company from Higher One for $91 million in 2015. Campus Labs' CoursEval is used by over 300 higher education institutions. Financial terms of the transaction were not disclosed
WeWork Acquires Flatiron School
WeWork, a provider of shared workspaces, acquired Flatiron School, a platform that offers online and in-person coding classes. Flatiron School was established in 2012, and has raised over $14 million. The company's classes cost between $12,000 and $15,000. Financial terms of the transaction were not disclosed
VocabularySpellingCity Acquires WriteSteps
VocabularySpellingCity, a game-based literacy platform for K-12 students, acquired WriteSteps, a writing and grammar program for K-5 students. WriteSteps, which is used by more than 10,000 teachers and 300,000 students, reportedly generated $1.2 million of revenue in 2016. Financial terms of the transaction were not disclosed
MindRocket Media Group Acquires American ED TV
American ED TV, a television media company focused on American education, was acquired by MindRocket Media Group, a provider of marketing communications and public relationship services to the education industry. Financial terms of the transaction were not disclosed
Varsity Tutors Acquires First Tutors
Varsity Tutors, a U.S.-based online private tutoring platform, acquired First Tutors, a Europe-based online tutoring marketplace. First Tutors has over 150,000 tutors on its platform, and has made 220,000 matches between students and tutors. Financial terms of the transaction were not disclosed
QS Quacquarelli Symonds Limited Acquires Hobsons Solutions Division from Hobsons, Inc. 
QS Quacquarelli Symonds Limited, a U.K.-based provider of higher education and career information and solutions, acquired the Hobsons Solutions Division from Hobsons. The Hobsons Solutions Division provides enrollment management solutions to universities throughout the world. Financial terms of the transaction were not disclosed
Brainly Raises $14 Million 
Brainly, a peer-to-peer learning platform for students and educators, raised $14 million in a round led by Kulczyk Investments. Naspers, General Catalyst, Point Nine Capital, and Runa Capital also participated in the round. Brainly, which has 100 million users, has raised $38.5 million to date
Linux Academy Receives $6.8 Million Investment from Arthur Ventures 
Arthur Ventures, an early stage venture capital firm located in Fargo, ND, announced a $6.8 million investment in Linux Academy, an online cloud training platform. Linux Academy, which has nearly 70 employees, generated $5.2 million of revenue in 2016
Moodle Raises $6 Million 
Moodle, an Australia-based open-source learning platform, raised $6 million from France-based Education For The Many, a Leclerq family office subsidiary. Moodle, which has over 118 million users, has never raised outside capital before. Financial terms of the transaction were not disclosed.
BridgeU Raises $5.3 Million 
BridgeU, a U.K.-based university preparation and career guidance software company, raised $5.3 million in Series A funding. The round was led by London-based Octopus Ventures, with Downing Ventures and Fresco Capital also participating. The company plans to put the money towards new employees and product development. BridgeU works with schools in over 50 countries
Fluent City Raises $3 Million 
Fluent City, a provider of language courses for adults, raised $2.5 million of funding. The round was led by Lerner Investments, and also included Learn Capital, New Ground Ventures, and 1776 Ventures. Fluent City has taught over 20,000 students, and plans to use the funds to expand its course offerings
Curiscope Raises $1 Million 
Curiscope, a U.K.-based educational augmented reality platform, raised $1 million in seed funding. The round was led by LocalGlobe, and also included Ascension Ventures, Force over Mass, ustwo Adventure, and Richard Fearn. Curiscope is best known for its application called Virtuali-Tee, which uses augmented reality technology to teach anatomy
Growth Street Partners Invests in CRM Web Solutions
Growth Street Partners, a San Francisco-based private equity fund, announced a minority investment in CRM Web Solutions, a customer relationship platform for the early childhood learning industry. CRM Web Solution's platform is used by over 2,200 early childhood learning centers throughout the world. Financial terms of the transaction were not disclosed
Quad Partners Invests in Rubicon 
Quad Partners, a New York-based private equity firm that is focused on the education industry, invested in Rubicon, a provider of curriculum design and instructional decision making solutions for K-12 educational institutions. Financial terms of the transaction were not disclosed
Talented Receives Investment from Duke University 
Talented, an online platform that uses games to advance its users' professional development, received funding from Duke University. Financial terms of the transaction were not disclosed
MC Monthly Commentary:

In 2013 and again 2014, we noted that certain education segments are more mature, and that some consolidation was possible. Industries best suited for consolidation are those where growth has slowed, scale matters, and price pressures exist. We mentioned three education segments as having potential for consolidation, including the SIS market and the online course market in K12, and the for-profit online colleges in postsecondary. There has been M&A activity in each space since we made those comments, and it is worth reviewing what factors are driving each.

In the SIS market, Vista's sponsorship of PowerSchool and subsequent add-on acquisitions are a prime example of consolidation at work to achieve scale. SIS is a fragmented market where significant cost-savings can be h ad, however there are considerable technical and market-place hurdles to successful integration.

In the K12 online course market, PE-backed Edgenuity has acquired Compass Learning, however Odessyware and Apex Learning ended up remaining as independent platforms in recent processes. It is debatable whether this market is fully mature. For some companies growth has slowed, and we hear reports of some competition on price. With other significant players including Edmentum and K12, further consolidation is possible.

In the online postsecondary space, this week saw the announcement of Capella and Strayer combining forces. Careful readers of this newsletter will note that Capella is a former Cherry Tree client and a company we helped found. Full disclosure on our potential biases aside, this deal is strategically justified in our view, given the complementary nature of their education programs, and scale given the price pressures in the broader postsecondary marketplace. 
For a confidential conversation about your company's strategic alternatives for exiting, merging, acquiring, or obtaining venture financing, and how trends in education affect your prospects, please contact us at 952-893-9012.

Education For-Profit 50 Index
For-profit education comprises more than 5% of the roughly $1.3 trillion that is spent on education in the U.S. annually. Cherry Tree created the Education For-Profit 50 Index representing a group of publicly traded for-profit education companies .
The For-Profit Education 50 Index consists of companies in the Pre-K-12, Postsecondary Education, Training and Development, and Education Products and Services segments for-profit education industry.

Postsecondary Education
Training  and Development
Education Products and Services Providers
EV*/Revenue = 1.7x
EV*/Revenue = 1.1x
EV*/Revenue = 1.4x
EV*/Revenue = 1.5x
EV/EBITDA = 12.1x
EV/EBITDA = 7.2x
EV/EBITDA = 11.9x
EV/EBITDA = 12.7x
3-Yr Rev Gr = 2.8%
3-Yr Rev Gr = -3.4%
3-Yr Rev Gr = 1.9%
3-Yr Rev Gr = 1.4%
EBIT Margin = 13.0%
EBIT Margin = 6.7%
EBIT Margin = 5.2%
EBIT Margin = 7.2%

* EV= Enterprise Value

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Important Disclosures
The information included in this publication has been obtained from public sources, and is not based upon private or confidential Cherry Tree information. Cherry Tree gathers its data from sources it considers reliable. However, it does not guarantee the accuracy or completeness of the information provided within this publication. Any opinions presented reflect the current judgment of the authors and are subject to change. Cherry Tree makes no warranties, expressed or implied, regarding the accuracy of this information or any opinions expressed by the authors. Officers, directors, partners of Cherry Tree and Cherry Tree proprietary investment funds may have positions in the securities of the companies discussed, and certain affiliates of Cherry Tree may recommend to specific clients the purchase and sale of securities discussed in the publication.  This publication does not constitute a recommendation with respect to the securities of any company discussed herein, and it should not be construed as such. Cherry Tree or its affiliates may from time to time provide investment banking or related services to these companies. Like all Cherry Tree employees, the authors of this publication receive compensation that is affected by overall firm profitability. We undertake no obligation to update any information in this publication. 

The Education For-Profit (EFP) 50 Index is a hypothetical index, and does not reflect an actual investment portfolio.  Comparisons between the EFP 50 Index and the S&P 500 are for illustrative purposes only.  Correlations in performance information for the EFP 50 Index and the S&P 500 should not be relied upon as indicative of risks involved in owning or holding a portfolio of securities similar to the EFP 50 Index. Past performance should not be relied upon as indicative of future performance.