Private equity firm Sterling Partners, already the majority shareholder of Keypath Education, has announced plans to acquire the remaining shares of the company for AUD 187 million. The deal, valued at $0.87 per share, will make Sterling Partners the sole owner of Keypath and result in the company’s delisting from the Australian Stock Exchange (ASX).
“The special committee has carefully considered the advantages and disadvantages of the proposed transaction and believes the offer price is attractive and provides the unaffiliated stockholders with liquidity and certain value today for their investment in our business”, said Diana Eilert, chair of Keypath’s special committee.
Keypath Education, a company specializing in online program management (OPM), has faced challenges due to a competitive operating environment. Despite announcing strong third-quarter revenue growth shortly before the acquisition news, Eilert noted that the lack of liquidity had been a significant impediment for both existing and potential investors. The committee unanimously recommended the transaction, which was officially announced on May 24, 2024.
“The news isn’t entirely surprising as it’s been a challenging operating environment for OPMs for a number of years”, said digital education specialist Neil Mosley. “There’s been a number of mergers and acquisitions during that period and continuing shakeout in this space, driven by economic and enrollment challenges”.
OPMs like Keypath assist universities in bringing their programs online. However, sector growth has slowed in recent years as many institutions increasingly manage their own online programming. This trend has negatively impacted the market valuations of publicly traded OPMs, with significant players like Wiley announcing acquisitions last year and 2U facing severe financial distress.
Keypath has strategically shifted its focus to healthcare programs in the US and Asia Pacific (APAC) regions, moving away from the UK and Canadian markets where it previously offered business-related programs. This pivot aims to capitalize on the growing demand for healthcare education.
“These Q3 FY24 results, including the increase in enrollments, demonstrate our strategic focus on healthcare in the US and the APAC region, providing us with confidence in driving revenue growth and continued profitability improvements in the coming periods, having reached adjusted EBITDA profitability in FY24”, said Keypath Founder and CEO Steve Fireng.
While the strategic pivot has shown signs of success, Eilert emphasized the balance between future growth potential and the industry risks associated with remaining a publicly listed company. Sterling’s offer of $0.87 per share represents an 88% premium over Keypath CDIs’ six-month average price of $0.46 to May 2024, which Mosley described as a 'generous' cash offer that aligns with supporting Keypath’s strategic direction.
“As Sterling Partners were already a majority shareholder and as the strategic pivot seems to be going in a positive direction, I wouldn’t expect this move to result in any significant changes within Keypath and its day-to-day operations but rather provides more ballast to the strategy it’s been trying to execute recently,” Mosley added.
Sterling Partners, a private equity firm with investments in education, consumer, healthcare, and technology services, including OpenClassrooms and Laureate Education, continues to demonstrate its commitment to fostering growth and stability within its portfolio companies. The acquisition of Keypath Education is anticipated to further solidify its presence and strategic influence in the online education sector.
The acquisition underscores Sterling Partners' confidence in Keypath’s strategic focus and operational direction, ensuring continued support and investment in the company's initiatives aimed at expanding and enhancing online education programs globally.
