Special Education M&A Report: Insights on Recent Trends

Special education is an educational approach that caters to the diverse needs of students with disabilities, ranging from physical, sensory, and intellectual impairments to emotional and behavioral challenges. What separates it from most of education as an investable category is that the demand is not discretionary. Under the Individuals with Disabilities Education Act, districts are legally obligated to provide a free appropriate public education to every child who qualifies, and federal funding behind that obligation has grown from $2.0 billion in 1992 to $14.2 billion.

The student population has grown with it, from 4.7 million in 1990-91 to nearly 7.5 million in 2022-23, or 15.2% of all public school students, more than double the share of the late 1970s. That combination of mandated service, public funding, and a widening qualifying population has made special education one of the more resilient corners of education M&A. Volume has risen every year since 2019 and 240 deals have closed since 2022, with financial buyers accounting for two-thirds of activity so far this year.

Special Education at a Glance

The main public funding sources are the Every Student Succeeds Act (ESSA) and the Individuals with Disabilities Education Act (IDEA). ESSA provides categorical funding to enhance student achievement, while IDEA, established in 1975, represents the primary federal support for special education and secured access to a free appropriate public education for children with disabilities in the United States. The Individualized Education Program, a legal document under IDEA, outlines the academic services needed to support a student with disabilities through the public education system at no cost to the family.

IDEA has also been instrumental in supporting Applied Behavior Analysis therapy for children with disabilities. ABA therapy leverages the science of learning and behavior to address behavioral challenges, and services are funded through health insurance, Medicaid, self-pay, or grants. That payer mix matters for M&A: ABA is where education services and healthcare reimbursement overlap, and it accounts for a large share of the transactions in this sector.

Increasing Government Funding

Recognizing the essential need for tailored educational support, there has been a marked increase in government funding. Between 1992 and 2024, federal funding for special education rose from $2.0 billion to $14.2 billion, a CAGR of 6.3%. State-level funding varies significantly because it depends on a local district’s tax structure. Public sources fund on average $4,000 to $10,000 per student, while funding levels for students with disabilities average $10,000 to $20,000. Federal support, largely through categorical grants to state education agencies, makes up approximately 10% of the total budget for special education, and local taxes contribute around 40% to 50%. Because of funding disparities within local communities, some states are addressing the issue with formulas that equalize funding and allocate more resources to disadvantaged areas.

Rising Demand for Special Education EdTech

Resources for students with 504 plans or Individualized Education Programs are the most in-demand of all edtech sub-verticals, with 68% of K-12 teachers in the U.S. expressing a desire for more support in this area according to a 2023 survey. The same survey found that 63% of U.S. K-12 teachers believe edtech has its greatest impact on enabling self-paced learning. Taken together, those findings point to demand for solutions that both serve individualized education plans and support learning at each student’s own pace.

Advancements in Educational Technology for Special Needs

Digital learning has gained popularity among students and educators in recent years, driving significant growth in the special education software market. The global market was valued at $3.5 billion in 2023 and is expected to reach $5.0 billion by 2030, a CAGR of 5.4%. Integrating gamification techniques with Individualized Education Programs through specialized educational technologies enhances the learning experience for students with special needs, providing interactive and personalized pathways suited to each student’s strengths and challenges. Gamification has proven particularly beneficial, turning learning activities into engaging, game-like experiences that improve motivation, focus, and participation while fostering cognitive and social skills in a supportive environment.

The market for assistive technology serving students with learning disabilities gained notoriety in 2020 and has grown significantly since. It addresses dyslexia, ADHD, autism spectrum disorders, and other cognitive impairments through software and devices that support reading, writing, mathematics, organization, and communication: text-to-speech software, speech-to-text tools, digital graphic organizers, interactive learning apps, and adaptive learning platforms. Growth is further driven by advances in artificial intelligence and machine learning, which make these tools more intuitive and effective. Over the period 2021 to 2030, the market for assistive technology for students with learning disabilities is projected to grow at a CAGR of 6.9%.

Special Education M&A Volume

Through September 2024, M&A volume in the special education sector reached 58 relevant transactions. Of those, 39 were completed by financial buyers, or 67%, and 19 by strategic buyers, or 33%. That sponsor-heavy mix is the most telling feature of the sector: private capital, not incumbent operators, is doing most of the consolidating.

The trend line is steady rather than cyclical. Volume climbed from 57 transactions in 2019 to a peak of 93 in 2022, held at 89 in 2023, and has continued at a comparable pace into 2024. Across 2022 to date, 240 deals have closed. Activity clusters in three places: ABA therapy and behavioral health platforms, which combine education services with healthcare reimbursement; specialized school and district-services providers such as Point Quest and Specialized Education Services; and the software and assistive-technology layer represented by n2y, TeachTown, CentralReach, and Don Johnston.

Geographically, North America held the largest share of the learning disabilities treatment market at 40% as of 2022, with a projected CAGR of 7.1% from 2023 to 2031. The Asia Pacific region is anticipated to see the highest growth rate in this market over the same period, at 7.7%, which is beginning to draw cross-border interest into a sector that has historically consolidated within national systems.

Notable Transactions

July 2024: Nyman Associates, a provider of school and home-based behavioral health, mental health, and therapeutic services to children with special needs, autism spectrum disorder, and developmental or behavioral issues, was acquired by Point Quest. Point Quest is a leading provider of adolescent behavioral health and special education services in California and Arizona, primarily serving K-12 school districts. A portfolio company of Avesi Partners, Point Quest pursued the acquisition as an opportunity to expand its presence in Pennsylvania and New Jersey.

June 2024: Behavioral Innovations, a leading provider of center-based ABA therapy to early intervention children with autism spectrum disorder and other related developmental disabilities, was acquired by Tenex Capital Management for approximately $300 million according to a report by Mergermarket. Previously owned by Shore Capital, Behavioral Innovations has grown to 77 locations across Texas, Oklahoma, and Colorado, offering individualized treatment plans and parent education services.

May 2024: TeachTown, a leading provider of special education solutions for students with severe learning challenges, received a significant growth investment from L Squared Capital Partners. TeachTown develops instructional tools designed to enhance the academic, behavioral, and adaptive functioning of students with disabilities, tailored to children diagnosed with autism spectrum disorder, intellectual disabilities, developmental delays, and emotional and behavioral disorders.

April 2024: n2y, a portfolio company of Providence Equity Partners and a provider of curricula, assessments, and professional development products for special education and personalized learning, acquired Texthelp. Texthelp offers literacy and accessibility technology, including tools built for individuals with learning disabilities such as dyslexia. Its products span text-to-speech, speech-to-text, and optical character recognition scanning, and the combination creates one of the larger dedicated special education software platforms globally.

Select Transactions

The table below covers special education transactions from January 2022 through September 2024. Three clusters account for most of the activity: ABA therapy and behavioral health services, specialized schools and district-services providers, and the software and assistive-technology layer. Audax Private Equity, Five Arrows Principal Investments, Point Quest, and The Stepping Stones Group appear as repeat acquirers, which is the signature of platform-and-add-on strategies rather than one-off buying.