An Interview with Charles McIntyre, Chairman and Benjamin Vedrenne-Cloquet, CEO of EdTechX Holdings, an innovative investment platform focused on the “Future of Education and Work”. The Team is focused on leveraging their global insights, investments and advisory platform to deliver a shared vision: Connecting, Building and Investing in Next Generation Education And Training Companies.
Please tell us about your background and how you came to set up EdtechX Holdings?
We have decades of experience as investors, advisors and operators in industries undergoing global consolidation and digital transition, in particular the media, technology and education sectors. (I was previously at Apax Partners and Benjamin at Warner Media, formerly Time Warner). In 2013, Benjamin joined me at IBIS Capital, a UK based investment bank focused on the media and education sectors. Together, we realized how technology and globalization were affecting these sectors, and the education sector in particular.
We wanted to build a platform to attract more capital to the edtech ecosystem and so we co-founded EdtechX Global, which runs international edtech conferences attended by investors, innovators, and CEOs. This provides a global network of relationships and insights which, combined with the investment banking and research capabilities of IBIS Capital (100+ M&A transactions in the sector), underpinned the launch of EdtechX Holdings, as the first SPAC platform focused on the Future of Education and Work.
Our vision is to build a permanent capital and research platform supporting next-generation education and human capital companies using SPACs to capitalize on the premium the public market assigns to private companies in the sector.
Could you help us understand the edtech space – how big is it, what are the key trends, how has it been impacted by Covid-19?
We see the education and training industry benefiting from a rising tide of growth and digital transformation. The education and training industry is estimated to be worth $5 trillion and is projected to grow at a 6% CAGR through 2025, driven by private spend and secular socioeconomic trends: demography, rise of global middle class, workforce reskilling urgency.
The edtech segment is estimated to be worth $186BN and is projected to grow by a 17% CAGR through 2025. Digital spending in education and training is only 3% of the total industry, this proportion is much larger (at least 30%) in other “content” industries so we believe that there is a lot of headroom for growth. This digital shift is now accelerated by COVID-19 which has fast-tracked the mainstream global adoption of edtech and digital training solutions by 5 to 10 years.
There is currently an opportunity to capitalize on the significant private to public premium (30% to 130%), the market assigns to scarce public education and training companies and on the availability of quality targets looking to become public. This is why we believe a SPAC play in this sector is particularly relevant.
Education and edtech stocks are also underrepresented in public equity markets. The cumulative equity value of all public listed education stocks in 2018 represented <5% of the amount spent on global education in 2018, a significant disconnect compared to other industries (e.g. ~50% for the Healthcare industry). It is worth noting that edtech stocks have largely outperformed the Dow Jones Technology Index and S&P since January 2016.
What is your experience with SPACs? How do you view them versus regular IPOs and VC/PE investments?
We launched EdtechX I, the world’s first education and education technology SPAC in October 2018. In hindsight, at that time, we were almost too early as the pool of transactable opportunities was much smaller than what it is today. Our first SPAC announced a deal in December 2019 (pre-covid crisis) and completed a merger in March 2020 (in the middle of the covid crisis). We merged with Meten, a market leader in English language training in China with an omnichannel business model combining center based and digital learning. It was a challenging de-spacing in March last year as there was a flight to cash and Chinese assets were a harder sell to US investors. We relied on Asian and European PIPE investors to close our deal and ended up with reduced free float resulting in a lot of stock volatility. Meten performed well for the first 2 quarters but the stock dropped as soon as the Company released the news that its center-based business had to temporarily close as a result of Covid-related government regulation. We expect the business to recover in 2021 with more digital focus and a leaner retail presence. We remain confident of the fundamental drivers of the business i.e. the Chinese urban middle class buying education products to better their life and professional outcomes but it will take time to rebuild this equity story.
So, we have already explored many aspects of the SPAC product just in one transaction. We learned a lot during the process particularly through the roller coaster of Covid. We feel well equipped for our second SPAC. The market conditions today, are much more favorable with a significantly larger pool of potential transactable edtech assets, especially in the US, willing to go public via a SPAC. With the favorable tailwinds for edtech, this is a pretty exciting time to access the public markets. There is also much more interest from institutional investors in digital transformation of education and training. Given the scarcity of listed edtech assets and the favorable existing valuation arbitrage, SPACs are a very relevant route vs an IPO or PE route for financing of quality edtech companies.
What are your plans in the SPAC space? How are you differentiated from generalists who might also wish to target edtech?
With our latest SPAC IPO, EdTechX Holdings II, we intend to invest in companies in the private education, training, reskilling, human capital and education technology sectors, with targets ranging from $400m to $2bn in enterprise value.
We are focusing on targets that are located predominantly in the US (70% of our deal flow), but also in Europe and Asia (excluding China). We are targeting public market ready companies that are well positioned strategically to execute on the consolidation and digital growth opportunities available in the education and training sector globally. As edtech becomes increasingly a hot sector, we believe more and more generalist and tech SPAC teams will look at the sector. We welcome additional participants as it not only endorses our own approach but helps stimulate market interest in the SPAC solution.
We have built a highly respected and differentiated sector specialist platform over the last 10 years. We have 20 people covering the sector globally, completed 100+ M&A transactions, an extensive global network of 4,750+ CEOs, 675+ investors and 5,000+ companies through EdtechX Global events platform. We have been covering the sector for 10 years now and have become a trusted voice in the industry. Our own research is picked up globally by bulge brackets banks like Citi, Credit Suisse or Barclays.
Also it is worth noting that the sweet spot of opportunities in the education and training sectors probably wouldn’t suit generalist and tech SPACs over $200M. The bigger the initial IPO, the bigger the target has to be, otherwise the SPAC structure becomes too dilutive and so less attractive to the target company. This is one of the key takeaways from our first blank check experience, right sizing a SPAC to its target universe is critical. Most first-time SPAC teams don’t do this planning exercise properly because they have not been in the trenches at the time of de-SPACing. Our SPAC capital structure is less dilutive than most SPACs in the market and provides an opportunity to bring additional financing via thematic and fundamental investment partners with whom we have relationships.
We heard about your “SPACs for Good” pledge, please tell us more about it.
EdTechX Holdings II is pioneering the inclusion of a “SPACs For Good” pledge by which we as founders grant up to 4% of our SPAC founders shares to not for profit initiatives supporting the digitization of education and digital inclusion in education.
The “SPACs for Good” pledge is an invitation to other SPACs founders and sponsor teams to pledge a minimum of 1% of their founders shares (or $1M worth of shares) as a grant to support endowments and non for profit initiatives involved in education, health, environment, diversity and tech inclusion. All sponsors have room in their economics to do so and we already have a couple of sponsor teams considering the pledge.
We hope to establish this “SPACs For Good” pledge as a market standard. This is not only the right thing to do but also a smart thing to do. By doing so, we aim also to attract new sources of capital to the asset class including ESG and impact funds.
Contact: Benjamin Vedrenne-Cloquet,firstname.lastname@example.org