Pearson, the London-listed education company, has hired investment bankers to explore a sale of a unit that generates around £300 million in annual revenue, EducationInvestor Global can reveal.

This publication has learnt that Pearson has instructed French banking giant BNP Paribas to review options that could include an auction of its global K12 courseware division.  

A sale of the business is the most likely – but not only – outcome of a strategic review being led by BNP Paribas.

The development underscores Pearson’s ambition to exit the K12 courseware market and focus on five core verticals: virtual learning, higher education, English-language tuition, workforce skills, and assessment and qualifications.

Pearson’s exit from K12 courseware began in 2019, when it offloaded its US-focused K12 courseware arm, Pearson K12 Learning, to Nexus Capital Management in a deal worth $250 million. The Californian private equity house rebranded the business as Savvas Learning Company following the deal.

Pearson’s global K12 publishing arm is larger than the division acquired by Nexus, generating around £300 million in annual revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) equal to 12-15% of this figure, according to a source.

The insider noted that the business comprises “mostly physical” assets, such as educational resources, textbooks, curricula and supporting materials, which are sold to schools worldwide and used by teachers and students.

It is unclear exactly which educational components – of which there are tens of dozens – will be included in the sale, but it is understood that the majority of assets are geared towards the K12 segment. The division does not encompass Pearson’s online public and private schools.

This publication understands that BNP Paribas is canvassing a pool of potential buyers, including trade consolidators and investment houses, while preparing a full prospectus for the business ahead of a competitive auction.

Pearson announced to the market that it had put its global K12 courseware arm under review – but it did not appoint BNP Paribas to explore options until April.  

One investment banker commented: “I’m not remotely surprised to hear that they’re selling it, given their revised strategy and exit from the US [K12 courseware] market a few years ago.”

A spokesperson for Pearson declined to comment.

The traditional educational publishing business model has been challenged over the past decade amid the proliferation of online learning prompting publishers to rejig their strategies, rolling out digital products to enhance core offerings.

Pearson began its so-called digital transition – alongside its evolution in focus from business-to-business to business-to-consumer – over four years ago, after selling its stakes in the Financial Times and The Economist in 2015.

Pearson’s share price is up 75% year-over-year, trading at 786p – however, this represents a 61% decline on its all-time high and a 45% decrease on its 10-year peak, reached in 2015.

Some educational publishers have sought mergers designed to consolidate market positions while exploiting economies of scale in an increasingly challenging business environment.

Cengage and McGraw-Hill, two of the US’s largest educational publishers, announced plans for a $5 billion tie-up – but these were shelved last May after the companies failed to agree a string of divestments with the US Department of Justice.

Date published: 22 April 2021

Continue reading

Subscribe to get unlimited digital access.

Subscribe

Already a subscriber? Login