Distant future

Victoria Giles, corporate finance director at Grant Thornton UK, sets out the driving forces behind consolidation in the e-learning market, for which the Covid-19 pandemic has been a boon

Slower economic growth from political and Brexit uncertainty hasn’t dampened the resilience of the e-learning sector, with the UK market growing consistently at over 10% per annum in recent years. There is belief within the sector that disruption from the Covid-19 pandemic will simply accelerate long-term growth and stimulate innovation, as providers are well placed to offer value to clients in this period of significant workplace disruption. Further consolidation of the market through M&A activity is also expected to be a key growth driver as providers look to differentiate themselves within an increasingly fragmented market.

Minimal impact on e-learning sector from Covid-19 Our latest research ‘eLearning – navigating a thriving tomorrow’, based on conversations with a number of e-learning providers across the country and our market insight – found that the sector has felt a moderate impact from the Covid-19 pandemic. Most respondents had only taken small mitigating actions in response to the virus, but the impact felt has varied according to provider type.

E-learning providers are focusing on measures to improve their cash flow and manage cost bases, with minimal use of government schemes, while content providers were found to have noted an initial uptick in demand, particularly for off-theshelf content as bespoke content has been harder hit. Platform providers have noted an upswing in inquiries from corporates testing the market for their first learning management system or seeking a more sophisticated solution. It’s no surprise, though, that face-to-face training delivery has plummeted, but some providers did report an increase in discussions with clients to help them move to virtual and digital training.

Drivers for consolidation and growth in the e-learning market As we start to move beyond lockdown and providers start to see how organisations’ new ways of working will either revert or become further embedded, our latest research explores the investment and M&A outlook for the sector. We identified four key drivers behind expected future consolidation:

Attractiveness of the e-learning market; Increase in digital innovation; The need for providers to differentiate; And a focus on international expansion.

Victoria Giles, Grant Thornton

There are more than 1,000 e-learning providers in the UK, many with revenue below the reporting threshold. This highly fragmented nature makes the sector attractive to entrepreneurs and investors pursuing a range of growth strategies. The market has seen trade players (Learning Technologies Group), pure play equity investors (Apse Capital and Altier Capital) and private equity-backed trade (Access Group) make a renewed push in the sector with acquisitions across 2019 and early 2020, driving deal multiples up. E-learning assets, particularly those of scale, with inherent technology IP and recurring software as a service (SaaS) and content as a service (CaaS) revenues have had the most competition for investment.

This fragmentation is only expected to increase, with some providers experiencing growth in demand as businesses look to test the water with online platforms. The need for digital and online learning capability has grown and the pandemic will inevitably challenge the delivery of face-to-face training (online training only currently accounts for around 25% of the learning market). We anticipate an increase in digital innovation and a renewed focus on creating a more integrated training and development solution that is tech-enabled and digitally-led.

Online learning use by training topic

Compliance

IT systems

Desktop applications

Industry-specific

Customer service

Interpersonal

Management

Sales

Onboarding

Exec development 100%

All online Mostly online Some online

Source: Training Mag ‘2019 Training Industry Report’ A few online No online

Differentiation is key to success consider, such as platforms that encourage collaboration There will be significant opportunities for or the use of videos and gamification to produce shorter e-learning providers to partner with traditional training learning pieces. providers as differentiation within the sector becomes Demonstrating a return on investment to clients even more critical. Existing providers may look to pivot is also important for all providers, and criticality and adapt their existing offerings online, and therefore helps. Compliance content is critical, as is a learning view M&A as a route to adapt more management system for demonstrating quickly, enable product development, compliance. Outside these areas, and gain market share. Now is the time that providers can add more value, Content providers any platform or product will benefit if it can prove behavioural change and successful players will be using can look to and knowledge transfer, or a direct this period to invest in adapting their differentiate impact on clients’ key KPIs, for products and solutions to address themselves by example: increased sales, net promotor clients’ needs. targeting specific scores, or reduced time to complete Content providers can look to differentiate themselves by targeting training topics courses. The appetite for UK companies specific training topics or sectors. The or sectors to expand internationally will also skills for which clients need training are continue to be a driver of deal activity likely to shift significantly. Compliance, where corporates and workforces need for example, is likely to remain critical, to collaborate and align learning but other skills such as health and safety, leadership strategies globally more so than ever. Providers such and development, and sales and negotiation will also as Learning Pool, Fuse and Learning Technologies Group require a more significant digital transformation. Quality, have all made a start in developing their presence in the engaging and specialist content attracts a premium US, a key market that is also fragmented and ready for and there are several innovative delivery models to further consolidation. ▶

▶ Future of the e-learning market

An overwhelming majority of our interview participants were cautiously optimistic about the longer-term prospects of the sector, given the degree of workplace disruption and inevitable training that will be required at all levels to ensure businesses adapt to the ‘new normal’.

Now is the time for organisations to demonstrate their resilience and their adaptability by evolving to meet the new requirements of their clients, which will differ for each provider. Face-to-face providers will need to embrace digital delivery alongside more traditional forms, while content providers will need to partner with the right platform providers and repurpose content for relevance. Failure to understand fully how clients’ needs have evolved and their new ways of working could ultimately lead to many providers’ solutions becoming outdated and potentially replaced.

While for many, the new pipeline of work has unsurprisingly slowed, and sales decisions may be taking a little longer, the wider skills and training industry is expected to remain dynamic, disruptive and in constant evolution, with both investors and corporates continuing to seek strategic acquisitions to diversify.

Various acquisition strategies have been pursued and we’ve seen transactions in the e-learning sector that have enabled businesses to:

Form a blended e-learning platform and content solution (for example, Learning Pool (Carlyle owned) and Aliter Capital’s combination of e-learning businesses Bolt and Sponge) Facilitate access to new sectors and associated client bases (for example, Mapal’s acquisition of hospitality focused e-learning provider Flow Hospitality) Expand internationally (for example, Learning Technologies Group, Learning Pool and Fuse are all developing their presence in the US) Increase traditional providers’ approach to blended learning through access to e-learning technology (for example, Emerald Works acquiring MindTools and City & Guilds acquiring Kineo).

We expect this to continue after lockdown ends, as unemployment is expected to peak and differentiation between providers will become even more critical as new entrants use the economic disruption to launch new technological innovation into the market. n