Bain Capital's Big Bet on EdTech with PowerSchool

Bain Capital's Big Bet on EdTech with PowerSchool

Plus: Carlyle's Japan fund has pipeline of 300+ targets, TPG goes on buying spree in downtown Manhattan, and AE Industrial Partners exits Belcan.

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: CEOs of companies in private equity buyouts face nearly double the risk of losing their jobs compared to their counterparts in publicly traded companies. This heightened risk is often due to private equity firms having specific operational strategies and preferring CEOs who can align with and achieve these new objectives. Additionally, new shareholders may lack confidence in the incumbent management or view a CEO change as a clear signal of a new strategic direction. (Read More)

More Insights

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  • CEO Turnover is Highest in PE-backed Tech Buyouts (Read)
  • Japan’s Share of Global Buyouts Reaches All-Time High (Read)

Spotlight

What’s the deal? Bain Capital has agreed to acquire PowerSchool for $5.6 billion. The company makes software solutions for schools, such as teacher assessment forms, hiring management tools, and teaching plans. PowerSchool has been previously owned by Apple, Pearson, and Vista Equity Partners – the latter of which will retain a minority stake in the company.

Path to profitability. PowerSchool has reported strong top-line growth over the years, with annual revenues nearly doubling since 2019 but net income has consistently been negative. That said, adjusted EBITDA grew +69% to $130 million in 2023. This combined with the company’s lackluster stock performance, which has been relatively flat since IPO’ing in 2021 made the company a prime takeover target. PowerSchool has set an aggressive focus on profitability improvement going forward, forecasting FY’24 EBITDA between $268 million to $273 million.

Expanding in a large market. PowerSchool is in growth mode, signing its largest customer deal yet (with the Indiana Department of Education), and launching in the Middle East and Latin America markets. The company was also quick to apply AI to its software products by introducing PowerBuddy, an AI-powered learning assistant. The combination of PowerSchool’s high margin software business model in a recession-proof industry with large institutional customers is attractive to private equity. However it’s relatively low EBITDA as a percentage of revenue is clearly indicative of opportunities for operational improvements. The company is already making some changes as it prepares to be taken private, such as hiring Jon Scrimshaw as Chief Accounting Officer.

Buyout News 

Bapcor, an Australian retailer that sells autoparts, has received a takeover bid of $1.2 billion from Bain Capital. The company reported $763 million of revenues in 2023, up +11% YoY, and $124 million of EBITDA, up +7% YoY, but its stock price is down -21% YTD after warning investors about a profit decline. (Source)

Carlyle recently raised $2.8 billion for its largest Japanese buyout fund ever, and now the fund is actively evaluating more than 300+ targets. Be sure to check out our recent summary of Carlyle’s role in the Japan buyout frenzy. (Source)

TPG has reportedly been buying-up downtown Manhattan office buildings at a steep discount. The downtown market has been overlooked by large real estate investors in favor of midtown. (Source)

Portco News

AE Industrial Partners is exiting Belcan, a digital engineering service provider, for $1.3 billion to Cognizant. AE acquired the company in 2015.(Source)

Textainer, a shipping container management company which was acquired by Stone Peak Capital just a few months ago, is now in talks to acquire a competitor owned by Chinese conglomerate HNA Group for $5 billion. (Source)

Questions? Email us: editor@valueaddpe.com