Newsletter: Dec. 10, 2018

Dear Friends & Colleagues,

It’s hard to believe that in a couple short weeks 2018 will come to a close. Fiscally, it’s been a banner year for many organizations as the economic expansion eclipses the nine-year mark, the labor markets remain strong, and M&A activity continues in velocity and volume. However, here at home and around the world, much volatility persists. Through it all, we have remained steadfast to our own pursuits. We have been putting our private capital to work, aiming to fund and influence the strategic direction of impactful businesses that are lending their support to the education and training markets.

It’s been a busy year for our team as we launched two new investment platforms, completed the sale of our first investment, continued to pursue a number of research-driven investment theses, and expanded our relationship circles with so many talented entrepreneurs and executives.

Back in May, we completed our fourth portfolio investment in Academic Programs International (“API”), a leader in experiential programs that has helped over 40,000 students at more than 350 U.S. universities experience some form of international study, work, or volunteer program for course credit. With the acquisition of API, we welcomed two new executive partners to the Education Opportunity Fund family: Jennifer Attal, founder & CEO, and Greg Finkelstein, Board Chair.

In July, we announced the sale of NRCCUA to ACT, Inc., the nonprofit developer of the ACT® test and other assessments taken by millions of individuals annually worldwide. We are quite proud of the team’s work at NRCCUA and saw our investments in technology, talent, and strategic relationships pay off as the company was able to substantially grow its student and institutional membership base and launch innovative new enrollment management and research solutions.

In October, we completed the fifth investment in our portfolio, which was the result of a research-driven investment thesis we had in the early childhood education space (“ECE”). The U.S. for-profit ECE market is a $27B market and is extremely fragmented with 54,000 for-profit, center-based providers in the U.S. with the top 50 providers only accounting for 11.5% of total licensed capacity and less than 6% of total centers.* The market is expected to continue growing at 5.5% per year through 2022 with demand for early childhood education on the rise driven by its proven efficacy and a growing number of dual income families in the U.S.

Our efforts, and our partnership with Scott Cotter and Bob Moffett, led us to our platform investment in Big Blue Marble Academy (“BBMA”). BBMA is a growing early childhood education organization that operates twenty-four community-based schools and six public elementary after school programs.Additionally, the company has three new greenfield school development projects underway. Going forward, Scott and team will look to expand BBMA’s network by acquiring exceptional schools in attractive markets across the U.S. Furthermore, with the acquisition of BBMA, we also welcome Ben Mayer, former Chairman of Endeavor Schools, to the Board of Directors of the company.

As we look ahead to 2019, we know that there’s no perfect crystal ball. We fully anticipate that cyclical and recessionary pressures are on the horizon, yet we remain optimistic that our sector can navigate the inevitable choppy waters caused by regulatory, demographic, and funding constraints. We know that private and public sector coordination is needed to improve our learning and talent systems, and we’re committed to deliver on our responsibility to fuel the best and the brightest entrepreneurs and organizations with the capital required to make a meaningful difference.

To that end, we continue to seek investment opportunities across the entire education and training spectrum. We look for fresh approaches where our growth capital, creative thinking, and relationships can make a difference in achieving profitable scale. Below we highlight a few targeted themes:

  • Partnership Models in Support of the U.S. Higher Education System – We see an important role for private capital as an engine of innovation that can help drive efficiencies and expand an institution’s addressable market through “program management,” “enablement,” and other forms of partnership models that drive student flow and services aligned to admissions and completion mandates. As many higher education leaders look to the future, they recognize that they will be facing challenges stemming from rising cost structures, further reductions in traditional sources of funding, and ongoing population shifts leaving certain schools more at risk than others. This is further exacerbated by a nation-wide reduction in birthrates that coincided with the onset of the 2008 Great Recession.**
  • Employer-Driven Education and Training Models – Whether in technology, healthcare, or other “new economy” clusters, there is a demonstrable shift in employers staking an ownership claim (and willingness to fund) the creation of their own talent supply chains. We see a convergence between the education and training sectors and the human capital management field as this large addressable market continues to undergo transformation.
  • Advancing Student-Driven, High ROI Programs – The economic and social disparity between college grads and everyone else is at a record high; yet a traditional bachelor’s degree is not for everyone. Student-funded alternative degree programs are not new, but those that can illustrate a compelling value proposition, provide affordable financing solutions, and match skills attainment with career entry and progression – all while delivering outcomes in a scalable manner – will see an influx of both investor and student demand.

As always, we would love to hear your perspective

Best wishes for a New Year filled with peace, happiness, and prosperity!
The Education Opportunity Fund Team

*Source: Silber, Jeffrey M. Education and Training – September 2018. BMO Capital Markets Research, 2018.
**Source: Martin JA, Hamilton BE, Osterman MJK. Births in the United States, 2017. NCHS Data Brief, no 318. Hyattsville, MD: National Center for Health Statistics. 2018.

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