Private equity house FPE Capital has hired bankers to sell its stake in Questionmark, the online assessment provider it acquired in 2016, EducationInvestor Global can reveal.

This publication has learnt that the lower mid-market buyout group, which specialises in software investments, has appointed investment bank Houlihan Lokey to marshal an auction of Questionmark.

London-based FPE Capital is in the process of appointing advisors to construct a vendor due diligence report, laying the groundwork for an exit in the next few months, it is understood.  

Houlihan Lokey, through its UK and US offices, is understood to be courting prospective investors that might be interested in taking a controlling stake in the firm, which is headquartered in Connecticut but also has operations in the UK and Germany.

FPE Capital used to own e-learning software provider Kallidus, the sale of which last year to Apse Capital was engineered by Houlihan Lokey.

A successful sale would facilitate for FPE Capital an exit from Questionmark just over four years after it initially invested and, in the process, installed Llewelyn John, partner, and Henry Sallitt, managing partner, to its board.

An auction will be launched at a time when, due to the coronavirus pandemic, the short-term future of physical exams is uncertain.

Last week, Wales’ education minister announced that Welsh students will not sit GCSE and A-level exams in the summer of 2021, a year after these exams were scrapped across the UK after Covid-19 prompted widespread school closures. Questions have since been raised over whether England and Scotland will follow suit.

Logic would suggest that such a scenario would boost online assessment providers like Questionmark.

But the organisation, which delivers more than 18 million assessments a year to some 2,500 clients, primarily targets governments and corporates, to which it sells customisable digital assessment products.

With more people than ever working from home amid the pandemic, demand for assessment tools that ensure risk compliance outside the workplace has ballooned.

However, in the company’s strategic report for the year ending 31 December, 2019, Bernie Waldron, director and non-executive chairman, said that “the group’s business operations have been affected by the Covid-19 pandemic”.

That year – before the pandemic struck – Questionmark’s UK division recorded earnings before interest, tax, depreciation and amortisation (EBITDA) of £367,000 but lost £827,000 against revenues of £12 million. The firm’s 2019 operating loss had narrowed, however, from 2018, when this figure was £2.4 million.

This was accomplished by a restructure, which involved “some headcount reduction” in the first half of 2019, according to Questionmark’s accounts, which outline the company’s “aim to profitability in 2020”.  

A source said that a teaser for Questionmark puts the organisation’s EBITDA at around £2 million.

One advisor told this publication that bankers will seek offers of 10-to-12-times this figure – suggesting the firm could trade for more than £20 million.  

Houlihan Lokey – which has in the past 12 months steered the sale of Norway-based itslearning to Sanoma and BIMM Institute to Intermediate Capital Group – declined to comment.

FPE Capital had not responded to a request for comment at the time of publication.

In January last year, Questionmark’s board installed Lars Pederson as chief executive to succeed Eric Shepherd, who led the company for 18 years and remains a minority shareholder alongside founder and executive director John Kleeman.

Pederson was formerly chief executive of Creditcall, a UK-based payment service provider.

Date published: 20 November 2020

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