Elevating Learning Experiences: Digital Transformation, AI, and Immersive Technology in Higher Education Services & Software

Higher education services and software, or HESS, is the technology and outsourced service layer that colleges and universities use to teach, assess, enroll, and support students. The pandemic tested it and the sector held. Providers adapted, built new ways of learning through technology, and showed strong resistance amid an uncertain economic landscape. Rising demand for technology and software, alongside consistent expansion of the broader technology industry, fueled strong growth.

What follows that growth is consolidation. The market is projected to reach $169.72 billion by 2028 at a 10.3% CAGR, and the buyer set has widened. Strategic acquirers remain the largest single group, but private equity accounted for 41% of 2022 transactions, and add-on acquisitions represented up to 62% of all buyouts from 2019 through the second quarter of 2023. The prize is the same one on every roadmap in this report: ownership of the student data layer that adaptive learning, analytics, and immersive delivery all depend on.

Higher Education Services & Software at a Glance

HESS has become one of the crucial parts of the edtech industry, in large part because AI now appears seemingly everywhere in higher education: management systems, proctoring, grading, student information systems, library services, and disability support. That breadth matters commercially. Continuous expansion of knowledge and skills improves curricula for students while creating a recurring transactional relationship between education professionals and technology providers, which is exactly the revenue profile acquirers pay for.

Market Size and Growth

The global higher education services and software market is expected to reach $169.72 billion by 2028, growing at a 10.3% CAGR. Growth is not evenly distributed across the stack. It concentrates where institutions face measurable pressure, namely enrollment, retention, and instructional capacity, and where a vendor can prove it moved an outcome.

Online Learning Is Displacing the Classroom

The industry’s acceptance of online and blended learning is replacing traditional classroom learning at an incredible pace. Increased internet coverage and the evolution of artificial intelligence have helped the higher education system adapt to new media to attract students, and they have been the main driving force of HESS market growth. Online courses are more readily available in all mediums than ever, which has diversified education. The quality gap has closed as well: 52% of US graduate students found their online college-level education to be a better learning experience than their classroom education, against 10% who rated it worse.

The sector is also no longer serving only traditional students. It caters to lifelong learners and professionals seeking continuous skill development, which is why online courses, micro-credentials, and certification programs have gained popularity.

Key Trends and Drivers

Asynchronous and Interactive Learning

The pandemic forced many schools and colleges into a remote learning model, accelerating a trend that had been building for some time. The market for online learning services and e-learning is forecast to grow 15% annually between 2020 and 2025, reaching a value of $50 billion. The underlying appeal is practical rather than technological. E-learning lets higher education students fit study around work or family responsibilities, which is precisely what the growing non-traditional student population needs.

The Shift from Print to Digital

Alongside that came the move from traditional paper books to online multi-touch eBooks. Reliance on physical books was tested by the spread of COVID-19 in 2020 and the lockdown restrictions that followed, and e-book use increased dramatically in a way that neither librarians, publishers, nor students had anticipated. The global eBook market is expected to reach $28.73 billion by 2026, growing at a 6.8% CAGR from 2018 to 2026.

Career Outcomes Become the Product

Web3, AI, and machine learning are among the new modalities finding their way into education, but students want value-added services: individualized coaching, interview preparation, and help finding employment. Some edtech businesses are expanding internal capabilities and pursuing acquisitions to build more comprehensive user experiences. upGrad purchased a staffing and recruiting firm in India to help students advance in their jobs. In the US, On Deck built a model around selling access to a community rather than courses. Arizona State University offers free counseling, mentoring, and crisis intervention to students enrolled in online or hybrid courses. Despite a dip in 2019, global edtech investment registered an average 45% CAGR over the prior five years and still grew 30% from 2020 to 2021.

Virtual Reality Moves from Pilot to Deployment

Educators are increasingly looking at how to incorporate VR into teaching as the technology matures, because the affordances are concrete: higher engagement and motivation, exploratory and contextualized learning, and experiential opportunities that are otherwise impractical. As of 2018, 18% of universities and colleges had fully deployed VR, 28% had used it to some extent, and 32% were testing it. Arizona State University uses VR so remote students can take part in lab exercises in an online biological science degree. San Jose State University and the University of Illinois are among the other institutions using it in higher learning.

Segment Highlight: Gamification and Simulation

Many of the fundamental mechanisms of gaming and learning are the same, and educators are increasingly exploring whether learning can be made as automatic and as enjoyable as gaming. Gamification of education is the application of game elements in non-gaming situations to motivate or influence behavior, and it should be distinguished from game-based learning. Applied to higher education, it incentivizes students to learn on their own and with more efficiency. The global education gamification market is currently valued at $1.5 billion and is growing at a 29% CAGR to reach $4.1 billion by 2027.

The higher education simulation segment is expected to grow at a 17.12% CAGR between 2023 and 2030 to reach $21.19 billion globally, according to Verified Market Research. The segment has seen a sharp increase in recent years, driven by investment from leading players and states, technology advances, and a growing number of people opting for higher education instead of vocational training. Simulation learning takes many forms, including computer simulations, virtual reality environments, role-playing exercises, and physical simulations using mannequins or other equipment.

Segment Deal Highlights

Gamification, May 2021: Kahoot! acquired Clever for $435 million to $500 million. Kahoot! is a globally recognized game-based learning platform built to make learning engaging, interactive, and fun. Founded in 2013 and headquartered in Oslo, Norway, it gained rapid popularity across education and corporate markets. Clever, founded in 2012, operates a market-leading open platform that brings schools, teachers, students, and application developers together in a single-sign-on education network, simplifying accessible learning and providing an easy go-to solution for all users. The acquisition continued growing Clever’s US business while giving it a lever for global expansion alongside Kahoot!’s wider stable of edtech software and services. Kahoot! CEO Eilert Hanoa framed the deal as an opportunity to collaborate on education innovation and to use the company’s global scale to offer Clever’s platform worldwide.

Simulation, August 2020: Collegis Education acquired Education Management Solutions (EMS) for an undisclosed sum. Collegis provides technology-embedded managed services that accelerate the transition to the university of tomorrow. EMS is an industry pioneer in simulation-based solutions for healthcare training environments, with a range spanning clinical simulation management software and hardware, counselor education, and virtual patient training, primarily for higher education. The combination paired education technology services with leading-edge learning technology products. Jamie Cowie, President and Chief Executive Officer of Collegis Education, said the EMS product suite would let the firm offer more solutions to current and future partners at a time of acute need.

M&A Overview

The HESS market recorded 44 transactions in 2022, up from 36 the prior year. Deal flow was expected to remain strong and stable through 2023 even under less favorable macroeconomic conditions, and the 14 transactions logged through early August are consistent with a market that slowed in pace without breaking.

Stable Interest from Financial Buyers, Continued Focus from Strategics

Private equity buyers accounted for 41% of total HESS transactions in 2022, down from 50% in 2021. From 2019 through the second quarter of 2023, add-on acquisitions took up to 62% of all buyouts, reflecting sponsors’ consistency in scaling their related holdings rather than building new platforms. On the 2022 base of 44 deals, the buyer mix works out to roughly 20 private strategic acquisitions, 12 sponsor add-ons, 6 sponsor platform investments, and 6 public strategic acquisitions.

The number of strategic transactions remains relatively strong, and a few large strategics have been consolidating aggressively. PowerSchool alone completed seven acquisitions since 2019.

Demand for Online Education Is Growing

Interest and participation in online learning continued to grow after the pandemic. 2020 saw record enrollment, and universities have launched new online programs to meet the increased demand. Companies with their own technology architecture and high margins are quickly becoming popular acquisition targets, and those that can create interactive and entertaining content using virtual reality simulation and video game technology are particularly targeted. In 2022, over 30% of all acquisition targets in the sector either provided outsourcing services for those technologies or had already integrated them into their platforms.

With institutional adoption of simulation technology and gamified solutions increasing, the global higher education gamification market and the simulation segment should continue to expand, with consolidation driven by M&A activity.

Valuation Insight

M&A transaction EBITDA multiples in the broader Education and Training market averaged a robust 14.0x over the past three years. Within HESS specifically, the transaction EBITDA multiple averaged 6.1x over the past two years. The rapid adoption, development, and integration of technology by HESS companies has greatly improved business efficiency, which has propelled valuations.

That HESS average rests on a thin base. Only three transactions in the select list below disclosed an EBITDA multiple and only two disclosed a revenue multiple, so the averages describe the disclosed subset rather than the market. The public comparables tell a similar story of dispersion: EV/Revenue across the ten names ranges from 1.2x at Stride to 8.7x at Instructure, with the spread tracking growth rate and margin structure more than sector membership.

Navagant Case Study

Navagant served as the sole financial advisor to Hawkes Learning on its recapitalization by Golden Vision Capital Americas, completed in August 2023 and the sector transaction closest to home in this report.

Notable Transactions

July 2023: Goldman Sachs Asset Management, the asset-focused arm of Goldman Sachs Group (NYSE: GS), agreed to acquire Kahoot! (OSL: KAHOT), the game-based learning platform, at an enterprise value of $1,613.3 million and a 10.6x EV/Revenue multiple. Goldman Sachs Asset Management invests across global equities, fixed income, real estate, hedge funds, credit, private equity, and infrastructure. The acquisition was designed to accelerate Kahoot!’s global outreach and growth in the edtech space. At the report date the transaction was pending regulatory approval, with closing expected in the fourth quarter of 2023.

May 2023: D2L, a global learning technology company providing cloud-based learning software to higher education institutions, K-12 schools and districts, and private sector enterprises, acquired Course Merchant for an undisclosed amount. The two companies already had a longstanding integration partnership, and the acquisition allowed D2L to deliver Course Merchant as part of its own product suite. Course Merchant is built for selling courses online and serves more than 200 global customers across higher education and corporate markets, pairing a front-end course catalog with a payments and enrollments system that supports continuing education and workforce development organizations serving the upskilling market.

Public Company Data

The public comparable set spans online program managers, courseware and publishing, learning platforms, and for-profit operators, which is why the trading range is so wide. Instructure commands 8.7x revenue and 22.4x EBITDA on 14% growth and a 39% EBITDA margin, while 2U trades at 1.4x revenue against declining revenue and a 15% margin. Three of the ten names carry negative EBITDA, and only Coursera traded near its 52-week high.

Select Transactions

The table below covers HESS transactions from January 2022 through August 2023, spanning courseware and learning platforms, student information and assessment systems, enrollment and marketing services, and the adjacent professional services that institutions buy alongside them. Enterprise value and multiples are shown where disclosed.

Buyer Universe

Our team has long-standing relationships with many of these firms through recent transactions in the Education and Training industry. We also track buyers that have been highly acquisitive in the HESS sector, particularly those completing notable M&A transactions. That sector expertise and network gives us insight into this buyer universe and into the growth drivers for the companies within it.