Cherry Tree & Associates | February 2018 | Volume XII, Issue 8

SELECTED NEWS

Francisco Partners Agrees to Buy Majority of Discovery Education for $120 Million Francisco Partners, a San Francisco-based private equity firm, agreed to buy a majority stake in Discovery Education, a provider of digital textbooks and educational resources, from Discovery Communications for $120 million. Read more www.franciscopartners.com Leeds Equity Invests in Endeavor Schools Leeds Equity Partners, an education-focused private equity firm, announced it has invested in Endeavor Schools, which operates 37 pre-K-12 private schools in 9 states. Terms were not disclosed. Read more www.prnewswire.com Microsoft Partners with Chalkup Microsoft (NASDAQ:MSFT) announced it has acquired an exclusive license to the technology used in Chalkup, a social learning platform for educators and students. Terms were not disclosed. Chalkup’s platform will shut down this summer. Read more www.edsurge.com PeopleAdmin Acquires Performance Matters PeopleAdmin, the Vista Equity Partners-owned provider of talent management solutions for education, acquired Performance Matters, an assessment and data management platform for schools. Terms were not disclosed. Read more www.peopleadmin.com Quizlet Raises $20 Million Quizlet, a provider of online flashcards and other learning tools, raised $20 million. The Series B round was led by Icon Ventures, with Union Square Ventures, Owl Ventures, Costanoa Ventures, and Altos Ventures also participating. Read more techcrunch.com Kuali Raises $10 Million Kuali, a provider of administrative software for higher ed institutions, raised $10 million in a round led by Owl Ventures. Kuali’s software is used by more than 160 educational institutions. Read more www.prnewswire.com Packback Raises $4.2 Million Packback, a company that provides textbook rentals and an online learning platform where college students ask and answer questions, raised $4.2 million in a Series A round led by University Ventures. To date, the company has raised $8.2 million. Read more www.builtinchicago.org 360Training Receives Investment from PWP Growth Equity and RedHawk Investment 360Training, a provider of online training courses, received an investment from PWP Growth Equity and RedHawk Investment. Over 4 million learners in 176 countries have used 360Training. Terms of the investment were not disclosed.  Read more www.businesswire.com

Varsity Tutors Raises $50 Million Varsity Tutors, a U.S.-based online private tutoring platform, raised $50 million in Series C funding. The round was led by Learn Capital, and also included TCV and Chan Zuckerberg Initiative. In total, the company has raised $107 million. Read more techcrunch.com Exponent Private Equity Agrees to Buy CEB Talent Assessments from Gartner for $400 Million Exponent Private Equity, a London-based private equity firm, agreed to buy CEB Talent Assessments, a provider of talent assessment solutions, from Gartner for $400 million. The deal is expected to close in the first half of 2018. Read more www.gartner.com EMC School Acquires Zulama EMC School, a provider of textbooks and digital learning solutions, acquired Zulama, a digital computer literacy program for middle schools and high schools. Terms were not disclosed. Read more globenewswire.com Singularity University Raises $32 Million Singularity University, a startup accelerator and provider of educational programs, raised $32 million. The Series B round was led by WestRiver Capital and Boeing Ventures. TAL Education Group, Silicon Valley Bank, and PeopleFund also participated. Read more su.org Kidaptive Raises $19.1 Million Kidaptive, an adaptive learning platform for children, raised $19.1 million in Series C funding. The round was led by Formation 8 and Woongjin ThinkBig. To date, the company has raised $38.7 million. Read more techcrunch.com ACT, a non-profit developer of standardized tests and assessments, invested $7.5 million in Smart Sparrow, an elearning platform used by educators to develop adaptive courses. The Smart Sparrow platform is used by 10,000 educators worldwide. Read more www.smartsparrow.com Jefferson Education Exchange Raises $1 Million Jefferson Education Exchange, an online hub where educators receive stipends for reviewing ed-tech products, announced it received $1 million in seed funding from Curry School Foundation and Strada Education Network. Read more marketbrief.edweek.org

CHERRY TREE EDUCATION FOR-PROFIT 50 INDEX

For-profit education comprises more than 5% of the roughly $1.3 trillion that is spent on education in the U.S. annually. Cherry Tree created the Education For-Profit 50 Index representing a group of publicly traded for-profit education companies.

The For-Profit Education 50 Index consists of companies in the Pre-K-12, Postsecondary Education, Training and Development, and Education Products and Services segments for-profit education industry.

* EV= Enterprise Value

MONTHLY COMMENTARY

As most readers of this column will know, SaaS is a popular place to invest and acquire, and valuations for businesses with SaaS models generally see higher valuations. But what is “normal” in terms of renewal rates in education, specifically in K12, and what should you expect of your business or your investment? We’re often asked that question, and the answer is (cue the Compliance Officer), “it depends.” What we see are that administrative software renewal rates are much higher than curriculum related renewal rates, often in the 90+ percent range, with the best rates in the high 90s. Curriculum companies are often happy in the mid-80s, while some of the best are in the low 90s. Although in our experience, the most likely high renewing curriculum related companies are more of a platform and less proprietary, serving up the most relevant products as chosen by the customer, and flexible to change over time. Anyone remember a term one of my colleagues coined in the 1990s when describing the benefit of subscription models; the Information Utility ?  Despite initial security concerns, SaaS has long been an attractive model to schools, specifically because it gives them more flexibility and a potentially lower cost if they don’t persist. And if they do, they benefit from continually updated content. And as to the long-term cost difference, lets face it: on-prem software companies not only want annual maintenance contracts, they love to sell upgrades every few years. While on-prem has an important place for some customers, we also love SaaS business models for their revenue visibility, and because it forces more attention on long term customer satisfaction. What is “normal” in terms of valuation is a different, but equally important question. For a confidential conversation about SaaS models, and/or your company’s strategic alternatives for exiting, merging, acquiring, or obtaining venture financing, and how trends in education affect your prospects, please contact us at 952-893-9012

For a confidential conversation about your company's strategic alternatives for exiting, merging, acquiring, or obtaining venture financing, and how trends in education affect your prospects, please contact Chad Johnson. Prepared by: Chad Johnson, Managing Director cjohnson@cherrytree.com | 952.253.6010 www.cherrytree.com 

Cherry Tree & Associates is a private investment banking firm headquartered in Minneapolis. Our firm specializes in serving middle market companies and their owners, whether private, public, or divisions of larger corporations.

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Important Disclosures  The information included in this publication has been obtained from public sources, and is not based upon private or confidential Cherry Tree information. Cherry Tree gathers its data from sources it considers reliable. However, it does not guarantee the accuracy or completeness of the information provided within this publication. Any opinions presented reflect the current judgment of the authors and are subject to change. Cherry Tree makes no warranties, expressed or implied, regarding the accuracy of this information or any opinions expressed by the authors. Officers, directors, partners of Cherry Tree and Cherry Tree proprietary investment funds may have positions in the securities of the companies discussed, and certain affiliates of Cherry Tree may recommend to specific clients the purchase and sale of securities discussed in the publication. This publication does not constitute a recommendation with respect to the securities of any company discussed herein, and it should not be construed as such. Cherry Tree or its affiliates may from time to time provide investment banking or related services to these companies. Like all Cherry Tree employees, the authors of this publication receive compensation that is affected by overall firm profitability. We undertake no obligation to update any information in this publication.   The Education For-Profit (EFP) 50 Index is a hypothetical index, and does not reflect an actual investment portfolio. Comparisons between the EFP 50 Index and the S&P 500 are for illustrative purposes only. Correlations in performance information for the EFP 50 Index and the S&P 500 should not be relied upon as indicative of risks involved in owning or holding a portfolio of securities similar to the EFP 50 Index. Past performance should not be relied upon as indicative of future performance.