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Pandemic Mergers and Acquisitions in Educational Video

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We've entered a new era in which well-capitalized companies gobble up less-successful competitors that have something to offer. The music has stopped, and as schools return to mostly normal operations, there will be fewer chairs available for educational technology providers. Companies that failed to gain sustainable market share dur­ing the past year of unprecedented mandatory school closures face uncertainty in a future in which remote instruction decreases to somewhere closer to pre-pandemic levels.

Each of these ill-fated companies was started with a dream and driven along by smart people putting their best efforts into realizing those dreams. Many of them were created with bright ideas that became useful features, and those companies provide value in an acquisition through intellectual property (IP). Oth­ers may have offered run-of-the-mill products that were marketed well but not quite well enough; They provide a buyer with additional customers. All offer talented personnel.

Three transactions impacting instructional media delivery have already been initiated in the past two quarters. These transactions serve as exemplars for capitalization methods that are well-suited for different phases of a company's growth and as datapoints for trends in streaming media in education. 

The first is the partnership between K1 Investment Management, LLC and Panopto to accelerate Panopto's growth in a conventional (for tech, at least) private equity deal. This capitalization immediately resulted in the acquisition of Ensemble Video, the company that provided the Ensemble video management system (VMS) in 2005. To my knowledge, this was the first VMS designed for the education sector just before the explosion between 2006 and 2007 that saw iTunesU, Kaltura, and Panopto hit the market for managing the delivery of video in schools. This acquisition seems to be a good fit from an IP/personnel standpoint, since both platforms are built on Windows server technologies. 

The second major transaction was Kal­tura's initial public offering (IPO), which raised $150 million for the company and its venture capital partners. The original IPO plan was set for earlier in the year, but an unexpectedly soft investor market delayed the share sale. The prospectus summary from Kaltura's IP filing with the SEC is required reading for anyone following this industry, as it is a strikingly clear-eyed take on the state of the educational video business as we exit the pandemic. 

The final exemplar transaction is 2U's purchase of the edX platform for $800 million, which was announced at the end of June and set off a flurry of controversy and summertime hot takes. A pair of well-informed and complementary analyses are Dhawal Shah's, from The Report by Class Central and Michael Feldstein's, from eLiterate. 2U is a company that primarily serves as an online program market (OPM), recruiting potential students to online post-baccalaureate degree programs and boot camps that are run mostly by universities in the U.S., U.K., and Australia.

The acquisition of edX is about building out a customer base and an international brand: Aside from branding elements, student data, and existing websites, no edX IP changed hands. To finance this purchase, 2U paid almost half of the value with cash on hand and the rest with a very favorable Term Loan B. (The Term Loan B is the institutional analogue of a bal­loon mortgage, in which small payments are made over a period of a few years with the full balance plus interest due at the end of that term. The major difference is that a single-family prop­erty doesn't typically generate $80 million of annual revenue.) The $800 million sale price is being paid into the as-yet-unnamed new nonprofit corporation being created by edX's founding institutions, Harvard and MIT. 

That nonprofit's mission will be to sup­port, among other things, the development of next-generation learning experience platforms, including the Open edX open source learning management system that edX is built on and that also powers HarvardX; a new Open edX instance at MIT called MITx; and manufacturingworkforce.org, a partnership between MIT and the U.S. Department of Defense that was announced on the same day as the 2U acquisition. Its funding is included in a $3.2 million grant.

With video proving itself among the most critical and impactful educational technologies over the past year, it stands to reason that these next-generation learning experience platforms supported by MIT and Harvard's nonprofit will show a rejuvenated focus on video technology.

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