IBIS Capital - E-Learning Lessons For The Future PDF

IBIS Capital | January 2013
Global e-Learning
Investment Review
IBIS Capital | Global e-Learning Investment Review

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IBIS Capital | Global e-Learning Investment Review 2

Glossary
Authoring tools: A software package used to create and package e-Learning content
Adult education: Self-learning and personal development
BEST companies are chosen by the American Society for Training and Development (ASTD) and tend to invest more in L&D
Business Processing Outsourcing (BPO): Business outsource service companies
Chief Academic Officer (CAO): The senior academic administrator assisting in the strategy of the educational institution
Chief Learning Officer (CLO): The highest-ranking corporate officer for talent or learning management within a corporation or agency
Content Management System (CMS): Software application that streamlines the process of designing, testing, approving, posting and publishing digital content
Corporate training: Professional training and learning and development programmes for firms
Electronic Performance Support System (EPSS): A programme that provides on-demand assistance for discrete tasks. An example of an EPSS is the built-in help functions of many software programmes
Face-to-Face (F2F): Term used to describe the traditional classroom environment
Higher Education (HE): Formal education post 18 years of age
Immersive Learning Simulations (ILS): A platform that allows an immersive learning experience in a simulated environment
Instructor-Led Training (ILT): Usually refers to traditional classroom training, in which an instructor teaches a class of students. The term is used synonymously with on-site training and classroom training
K-12: Formal education period up to 18 years of age
Learning Content Management System (LCMS): A software application that allows trainers and training directors to manage both the administrative and content-related functions of training. An LCMS
combines the course management capabilities of an LMS (learning management system) with the content creation and storage capabilities of a CMS (content management system)
Learning Management System (LMS): Software that automates the administration of learning/course delivery events. The LMS registers users, tracks courses in a catalogue, records data from learners and
provides management reports. An LMS is typically designed to handle courses by multiple publishers and providers. It usually does not include its own authoring capabilities, instead, it focuses on managing
courses created by a variety of other sources
m-Education: Any form of e-Learning delivered to a mobile device, e.g. via smartphones or tablets
National Assessment of Educational Progress (NAEP): Largest US representative and continuing assessment of what America's students know and can do in various subject areas
Open Education Resources (OER): Freely accessible, openly formatted and openly licensed documents and media that are useful for teaching, learning, education, assessment and research purposes
Personal Learning Environment (PLE): Systems that enable learners to take control and manage their own learning
Programme for International Student Assessment (PISA): International study that was launched by the OECD in 1997. It aims to evaluate education systems worldwide every three years by assessing 15-
year-olds' competencies in the key subjects: reading, mathematics and science
Purchasing Power Parity (PPP): An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each
currency's purchasing power
Software Development Kit (SDK ): Software development tools that allows for the creation of applications for a certain software package, software framework, video game console or similar platform
Reusable Learning Object (RLO): A specific element of content that can be reused in multiple learning programmes in order to reduce the cost of content creation
Shareable Content Object Reference Model (SCORM): A set of standards and specifications for e-Learning training materials
Social Learning Management System (SLMS): An LMS designed for collaborative use
Tin Can API: An e-learning software specification that allows learning content and learning systems to speak to each other in a manner that records and tracks all types of learning experiences
Talent Management System (TMS): An integrated software suite that manages performance management, learning and development and other talent capital related tasks
Virtual Learning Environment (VLE): A web-based education system that models traditional education in a virtual environment
Web-based Training (WBT): Any instructional event that can be accessed via the Internet or the Web
G500: Top 500 organisations from the global Fortune 500 companies that have submitted data for this report

Table of Contents
6 10 Introduction to e-Learning
11 29 Education Trends and the Adoption of Technology
30 57 e-Learning Subsectors
Content
Management Systems
Distribution
58 61 Pearson Case Study: a Leader in Education
62 68 Valuation and M&A Activity
69 71 Buyer Landscape and Strategic Rationale
72 74 IBIS Capitals Lessons for the Future
75 100 Appendix
101 About IBIS Capital

The IBIS e-Learning Report
Providing an Industry Overview Insights into e-Learning Innovation

1 4
The e-Learning market broadly splits between the The education market is now ripe for innovation.
educational market and the market for corporate There are a whole range of new technologies and
training. Although there are a number of similar business models. Within the different e-Learning
themes we examine the dynamics of both sectors subsectors, we review these developments and how
they are affecting the industry
Explaining Key Market Factors M&A and Valuations

2 5
The e-Learning market is driven by a range of The market has a healthy ecosystem of large
factors from both the supply and demand side. strategic players, expectant capital markets and
Technology and infrastructure are key factors for the venture capital investors. We review the current
supply side whilst the relationship between M&A and investment activity
consumer, government and corporate are driving
demand
Understanding Market Trends IBIS View of the Future

3 6
The pace of change will dictate the emerging We believe there is a paradigm shift occurring in the
structure of the e-Learning landscape. The e-Learning market which will radically change the
underlying trends affecting government spending, future of how education is resourced, taught and
technology and consumer behaviour are all consumed. We provide our thoughts on how this
important factors that we review might turn out

Introduction to
e-Learning

The e-Learning Opportunity
Healthy Ecosystem New Companies

1 4
1.4bn students out of 7.1bn world population c.3,000 e-Learning companies in Europe alone
$4,435bn global education expenditure 173 companies raised funds in the past 2 years, of which 66%
were US-based companies
7.4% p.a. growth in overall education spend through to 2017
23.0% p.a. growth in e-Learning over same period 100 of the 140 e-Learning companies in India were founded in
the last 3 years
which is a currently a $91bn global market
Need for Change Government

2 5
Education costs have risen 84.0% since 2000 Government budgets under pressure
which is 46.6% higher than the rise in the CPI Blended instruction has proved more effective than purely
0.7bn adults are expected to lack basic literacy skills by 2015 online instruction or traditional face-to-face teaching
>$1.0tn is the current total US student loan debt The Tin

Can Project is setting technical industry
standards for e-Learning software
Technology to Prosper Fundraising and Consolidation

3 6
870.0% growth to >2.4bn internet users since 2000 $8.5bn of M&A deals in 2012
m-Education(1) is set to grow at a 30.8% CAGR to 2020 The management systems and distribution subsectors
US student tablet ownership grew at 257.1% last year each accounted for 46% of M&A deal volume in 2012
65.5% of Chief Academic Officers believe that online teaching $1.0bn raised through 94 fundraisings in 2012
is critical to long-term strategy
71% of fundraisings were in the e-Learning distribution space in 2012
41.7% of the G500 use technology adapted training Strong Appetite from strategic, private equity and venture capital
firms
IBIS Capital | Global e-Learning Investment Review Source: IBIS Capital analysis, Capital IQ, GSV Education report, Ambient Insight, Microsoft, Consumer Financial Protection Bureau, Annual Survey of 7
Colleges, The College Board, Integrated Post-Secondary Education Data System (IPEDS), US Department of Education, National Center for Education
Statistics, Babson Survey Research Group, Internet World Stats, McKinsey, EDUCASE, ASTD, AM Mindpower Solutions, Kompass International
(1) m-Education includes all internet connected devices, such as smartphones or tablets
2011 Education Snapshot
Global Education Expenditure by Geography and Subsector

Key Points
($bn) In 2011, global education expenditure

2,407.5
2,500.0 Europe was $4,109.5bn
Latin America
2,000.0 K-12 education represents a total of
North America
Middle East & Africa
58.6% of global education expenditure
1,500.0
and is a key focus for hybrid learning
1,026.4 Developed Asia-Pacific
environments
1,000.0 Emerging Asia-Pacific
500.0 North America and Europe are the

272.0 196.6 207.1
major markets in all subsectors
0.0
Pre-K-12 K-12 Post-K-12 Vocational Corporate
Global Education Expenditure by Geography and Subsector
Europe K-12
Latin America 25.2% 58.6%
7.9%
Pre-K-12
6.6%
Emerging Asia-Pacific
16.6% Corporate
North America 5.0%
32.6%
Vocational
Developed Asia- 4.8%
Pacific Post-K-12
Middle East & Africa 14.6% 25.0%
3.1%
Source: McKinsey
IBIS Capital | Global e-Learning Investment Review Note: K-12 is used as a synonym for formal education from kindergarten to 18 years of age 8
Growing Education Market Driven by Growth of e-Learning
Global Education Expenditure Forecast by Subsectors

Key Points
($bn) Global education expenditure market is

10,000.0 projected to grow at 7.4% until 2017
For profit
6,333.8 Test preparation / tutoring market
8,000.0 e-Learning expenditure projected to
5,482.0 Global language learning
grow at 23.0% p.a. to $255.5bn from
6,000.0 4,435.3 Serious gaming
2012P-2017P which comprises:
Child care
4,000.0 K-12 CAGR of 33.0%
Social learning / communities
Higher Education CAGR of 25.0%
Corporate & government learning
2,000.0 Corporate market CAGR of 8.0%
Post secondary
K-12
The global language learning market is
2012P 2015P 2017P
set to grow at 20.0% p.a. to $247.5bn in
2017, with English language learning
Fast Growing Segments (20122017 CAGR) growing at 25.0% p.a.
50.0%
41.1%
40.0%
29.9%
30.0%
23.0%
20.0%
20.0%
10.0%
0.0%
e-Learning Social/communities Serious gaming Language
Source: IBIS Capital estimates, GSV education report, Ambient Insight research
e-Learning is Transforming Each Stage of the Education Sector
Key Points
Content Management
Systems e-Learning affects the entire Education
sector and enhances methods of
Content creation Fully integrated software creating, storing, distributing,
Content publishing via: platforms producing learning content
Digital textbooks Library of teaching resources
Networks and online interaction The audience for e-Learning includes:
Video
facilities pre-K-12, K-12, higher education,
further/adult/social education,
Testing, self-assessment and
certification professional education and corporate
training
Multiple emerging business models

within the online sector ranging from
Distribution (e-Learning Providers) free access to traditional subscription
models
Massive Online The penetration of mobile devices is

Online m-Education Open Course significantly increasing the number of
(MOOC) access points to e-Learning
Immersive Serious Gaming /

e-Books & Rentals
Learning Gamification

Education Trends
and the Adoption
of Technology

Government Expenditure is Vital to Education
Education Expenditures as a % of GDP (2000 vs. 2008) Key Points

2008
9.0% 2000 Targeted government spending is an
important stimulus for enhancing the
6.0% skills within the labour force. In turn,
investment in skills needed to drive
3.0%
economic prosperity
The US education system is correlated

0.0%
to the overall health of the economy.
Czech Republic
Iceland
Brazil
Belgium
Austria
Ireland
Italy
France
Korea
Canada
Mexico
Germany
Spain
Poland
OECD Average
Finland
Japan
Israel
Chile
Denmark
Hungary
Portugal
Netherlands
United States
Norway
Sweden
Switzerland
United Kingdom
Australia
Slovak Republic
Economic downturns result in budget
cuts and layoffs within the education
sector. Shift of expenditure to the
private sector driving tuition fees
Example: US and UK Government US Unemployment Rate Partially Explains higher
Education Expenditure (% of GDP) Tertiary Education Enrolment Growth
State of the labour market impacts
demand for vocational training:
United States Unemployment rate changes to the economic base result
6.0% 12.0% Tertiary education enrolment in changes to the skills requirement
United Kingdom
unemployed seek to re-train in order
5.5% 9.0% to return to the labour market
5.0% 6.0% Corporate investment in the workforce

to enhance skills provides an ongoing
4.5% 3.0% vested interest to retain and develop
employee skills further
4.0% 0.0%
Source: IBIS Capital analysis, Institute of International Education, World bank, Bureau of Labour statistics, OECD Education at a Glance - 2011
Population Growth and Dropout Rates
Population Growth and Internet Penetration by Region

Key Points
2012 Population Internet Penetration (% of Population) 10 Year p.a. Population Growth Rate 2002-2012 The US population is projected to grow
(m) at c.1.0% which is relatively low
1.1% 2.3% 0.2% 1.2% 0.9% 1.7% compared to the emerging economies
5,000 100%
4,250 78%
4,000 70%
64% 75% Population growth is a leading
3,000 indicator for pre-primary school
42%
50% enrolments which will eventually
2,000 27% 1,070
develop into secondary and higher
16% 740 603 25%
1,000 351 education enrolments
38
0 0%
Asia Africa Europe Latin America / North America Oceania / Globally, rapid population growth in
Caribbean Australia
the past 5 years has caused pre-primary
enrolments to grow at 16% worldwide,
US Student Dropout Rates this is expected to be 20% with new
growth rates(1)
10.0% 9.4% 9.3% The global population is expected to be

8.7%
8.0% 8.1% 9.2bn by 2050 and as countries
7.4% develop, improvements in medical
7.5%
conditions increase the birth rate(2)
5.0%
Lack of financial aid, disabilities and
poor student engagement are main
2.5% causes of for high student dropout rates
0.0%
2005 2006 2007 2008 2009 2010
Source: Internet World Statistics, US Department of Education, United Nations

IBIS Capital | Global e-Learning Investment Review (1) AM Mindpower Solutions 13
(2) United Nations Population Division (UNPD)
The Rising Cost to be Educated
2008 Tuition Costs & Tuition Costs as a % of Median Incomes Across 15 Countries (1) Key Points
($ 000s)
Tuition costs are a major cost in all
30.0 Total cost 176% 200%
countries
Total cost as a % of median income
24.0
150%
Richer economies spend relatively
109%
18.0 more on education
87% 84% 100%
12.0 60% 55%
49% 43% 45% 46% The cost for education has been rising
37% 39% 38%
30% 28% 50%
6.0 faster than inflation for decades (See
graph to the left, which has been
0.0 0%
indexed at 100 at 1972)
The total student loan debt stands at

over $1tn(2) and is increasing at a faster
rate
Average Enrolment Weighted US Education Costs vs. CPI Index Since 1972(1)
US private not for-profits and public
university courses are a good proxy to
Private not-for-profit Public CPI show:
1,500.0 the rapid increase of prices for a
1,354.7
1,250.0 standard bachelors degree
the closing of the gap between state
1,000.0 funded and not for-profit courses by
750.0 c.9.1% from 1972 to 2012 as the cost
for public courses are increasing the
562.9
500.0 fastest
250.0
0.0
1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: IBIS Capital analysis, Higher Education Strategy Associates, Annual Survey of Colleges, The College Board, Integrated Post-Secondary
IBIS Capital | Global e-Learning Investment Review Education Data System (IPEDS), US Department of Education, National Center for Education Statistics 14
(1) These costs include living and food costs
(2) Consumer Financial Protection Bureau's student loan ombudsman
Not Getting What Youre Paying For
US per Student Spending vs. Student Performance, 19712009 Key Points

Total (public & private) expenditure per pupil in public elementary and secondary schools
($) Scaled Test Scores (NAEP) While US spending on education has
Total expenditure per pupil in average daily attendance (1) (2) been increasing over time, reading and
15,000 500
NAEP average reading scores for 13 year-old students $13,141 math scores in the US have remained
NAEP average math scores for 13 year-old students $12,187
450 relatively stagnant
12,000 $10,996
$9,468 $9,688
400 The relationship between education
9,000 $7,627 expenditure or GDP per capita and
$6,953 350
$6,464 educational performance seems to be
$5,726
6,000 weak
276 279 281 300
266 264 269 269 270 274
255 256 258 257 257 258 259 257 260 Shanghai-China and Korea were both
3,000 250
71' 73' 75' 78' 80' 82' 84' 85' 96' 90' 94' 95' 99' 00' 04' 05' 09' top math performers in 2009 and had a
GDP per capita below the OECD average
Global Annual Total Secondary
Global Average Math Scores for 15
Education Expenditure per
Year-Old Students, 2009 The correlation between GDP per capita
Student, 2009(3)
Annual Expenditure Scaled Test Scores (PISA)
and education performance only predicts
6% of the differences in student
USA $12,550 Shanghai-China 600
FRA $10,696 KOR 546
performance across countries, while 94%
UK $10,013 FIN 541 reflects the fact that countries of similar
EU21 Avg. $9,513 JPN 529 prosperity can produce significantly
KOR $9,399 CAN 527 different educational results
OECD Avg. $9,312 GER 513
GER $9,285 FRA 497
JPN $9,256 OECD Avg. 496
(4)
CAN $8,997 UK 492
FIN $8,947 USA 487 We spend a lot on education and do not
RUS $4,325 RUS 468 see the results
MEX $2,536 MEX 419
Joel Klein - CEO of Amplify, News
BRZ $2,235 BRZ 386
Corps education business and
former Chancellor of the NYC
Department of Education
Source: NCES Digest of Education Statistics, 2011; OECD Education at a Glance, 2012, OECD; OECD (2010), PISA 2009 Results: Executive Summary
IBIS Capital | Global e-Learning Investment Review (1)

(2)
Excludes community services, private school programmes, adult education and other programmes not allocable to expenditures per student at public schools
Expenditure values are derived based on constant 2009-2010 dollars based on the CPI
15
(3) Refers to direct public and private expenditure by educational institutions in relation to the number of full-time equivalent students enrolled. Public subsidies for students living
expenses outside educational institutions have been excluded. Expenditure values have been derived in equivalent USD converted using PPPs for GDP
(4) Refers to 2008 data
The Technology Environment Allows e-Learning to Flourish
e-Publishing
iBooks
Kindle and iPads
Drills
iPhone and Android
Problem Solving Exercises
Tuition/Courses e-Bulletin
Webcasts
Scenarios
Podcasts
Instructional Games & Simulations e-Reference documents
OCW
ILS Virtual Classrooms
(OpenCourseWare)
(Immersive Learning Simulation) PLE

Apps VLE Learning 2.0
(Personal Learning Environments)
Mobile Learning (Virtual Learning Environments) RLO Internet
iPhones and Smartphones (Reusable Learning
Object)
Blogs
Handheld Learning
e-Assessment Performance Management
DS and PSP Micro Blogging
EPSS
Portable Learning e-Portfolio (Online help) Wikis
Net books, laptops and e-readers LMS
Social Networking
(Learning Management System)
LCMS
(Learning Content Management System)
Authoring and Development Tools
Source: IBIS Capital, Learning Light

e-Learning is Strategically Critical to Higher Education
Is Online Education Critical to the Long-term Strategy of the Institution?

Key Points
Agree Neutral Disagree 65.5% of Chief Academic Officers

80.0% (CAO) believe that online education is
critical to the long-term strategy of the
65.5%
60.0% institution
Over the 9 year period (2002-2011),

40.0%
16.7% of CAOs who held neutral
21.0% views gradually shifted to agree
20.0%
13.5% The CAOs that disagree have
0.0% remained at a consistent level
Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11
However, there currently exists a gap

Online Education is Critical to the Long-term Strategy of my Institution by between those who believe its critical
Institutional Control and those who include it in their
strategic plan
Public Private, not for-profit Private, for-profit
80.0%
77.0%
69.1%
Private for-profit institutions have
60.0% made the most progress in the past 2
54.2% years, increasing the number of
institutions that include online
40.0%
education in their strategy plan going
forward
20.0%
0.0%
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11
Source: Babson Survey Research Group

New Business Models Disrupt Higher Education Learning
The Evolution of Education Competitive Landscape
Pressure on government education budgets and rising costs of higher

Providers # of Courses Covered Cost
education are driving the necessity for cheaper alternatives for Courses
education. Various models that address the online market are detailed
below: 207 College courses Free
OpenCourseware
OCW consists of academic course materials created University level courses
19 Free
by universities that are shared freely on the internet
Massive Online Open Courses 9 University level courses
Free
MOOCs bring together thousands of students around
the globe to learn for free online Courses can be made by anyone,
5,015 including academic courses Free $29+
Online Accredited Courses
Typically subscription-based services that allow K-12, SAT prep, GMAT prep and
students to take accredited, general education 3,600
college level topics Free
courses online
High school, college, SAT, GRE,
Online Courses 200 $20+ pcm
MCAT, professional courses
Non-accredited courses that can help brush up on
basics or learn new skills 390 High school, college and
professional courses $20-$200+
DIY Degrees
Earn a bachelors degree by taking tests instead of 42 $99 pcm
College prep and college courses +$49 per course
classes
Benefits: Limitations: Other Players

Cheaper alternatives provide Recognition of qualifications
access to large student and credentials
audiences One size fits all approach
User-defined service Not suitable for all students
High quality resources raise
global standards
Source: Company data, Research reports, Educase

Corporate Training Increasingly Uses Technology
Average Direct Learning & Development Expenditure per Employee

Key Points
($) In 2010, US firms with less than 500

BEST G500 Consolidated
2,000 employees spent on average $1,605,
1,554 1,616 companies with 500 to 9,999
1,531
1,451
1,500 1,303 1,268
employees spent $1,102 and firms with
1,217
1,073 more than 10,000 spent $825 per
1,226
employee(1)
1,000 1,182
1,055 1,110 1,068 1,081 1,067
1,022 1,040 1,034
800 857 Learning & Development Comments
500
US organisations made double digit

0 cuts in L&D budgets in 2008 and
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2009(2) and are now currently in
recovery with over $156bn spent on
% of Formal Learning Hours Used via Technology Based Methods employee learning last year
Corporates in Spain and the UK lead

60.0% BEST G500 Consolidated the way in their use of e-Learning (with
49.9%
56% and 53% respectively of learners
45.0% 38.7% 40.1% 41.7% using it):
34.4% 36.4% 34.4%
34.3%
31.1% 32.3% Spain leads in the video category
36.3%
38.5% with 57% of users utilising this
30.0%
30.5% 32.1% 31.8% functionality(2)
29.1%
25.6% Germany leads on its use of serious
15.0%
games and mobile learning with
German learner penetration rates of
0.0% 21% and 15% respectively(2)
2004 2005 2006 2007 2008 2009 2010 2011
Source: ASTD, Cegos

IBIS Capital | Global e-Learning Investment Review (1) ASTD data including the entire sample 19
(2) Cegos
e-Learning Penetration Increasing in European Corporates
% of Employees Using e-Learning % of Employees Using e-Learning

Across European Countries Across All Firm Sizes Key Points
Market acceptance of e-Learning has

Country < 10% 10-50% > 50% Firm Size by < 10% 10-50% > 50% resulted in increasing use for both large
Employees
60% 51% 60% and small companies
43% 39% 40% 43%
30% 34%
UK 40% 29% < 1,000 40% 26% 27% 25%
20% 20% UK and Spain are leading the adoption
5%
0% 0%
of e-Learning in Europe
2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012
Companies are increasing their use of

60% 60% 51%
33% 35% 38%

44%
39%
34% 35%
e-Learning regardless of their size
Spain 40% 29% 1,000-5,000 40% 25%
19%
20% 20% 12%
0% 0%
2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012
60% 60%
40% 38% 42% 41%
35%
41%
40% 32% 40% 30% 31%
Benelux > 10,000
19% 19%
20% 20% 12%
0% 0%
2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012
60% 51%
44%
36%
France 40% 25%
18% 17%
20%
0%
2010 2012 2010 2012 2010 2012
53%
60%
43%
Italy 40% 26% 26% 26%
15%
20%
0%
2010 2012 2010 2012 2010 2012
Source: Ipsos, CrossKnowledge

Technology Driving Bring Your Own Device Learning
Mobile Education at Your Hands Tablets & Connected Devices
Growth in Smartphone Shipments 37% Student Tablet Ownership 45%

(m) Key Points Key Points
1,500
Strong and consistent Multi-functional tool
1,200
shipment growth 30% 25% Bring Your Own Tablet (BYOT)
953
1,000 Smartphone penetration theme
792 20%
rates highest with 18-34
631 7% 70% of college students have read a
year olds 10%
468 digital textbook versus 62% last year
500 297 Smartphones per person 0%
58% of high school seniors have read
is growing 2011 2012
digital books versus 41% last year
0
2010 2011 2012P 2013P 2014P 2015P
e-Learning
Growth of Online Enrolment (Laptop) Skill Gaps
Online enrolments (m) y-o-y growth (%) 85% % of Jobs Requiring Technology
Skills
4.0 80% Key Points Key Points
67% 3.4
Significant online 2011 Technology is ever more present
3.0 60% 50% Next
enrolment growth across job specifications creating the
Decade need for e-Learning
2.0 40% 6.5m students studied at 77%
least one online course in 90% of the USs fastest growing jobs
1.0 20% the US during 2011 % of Jobs Requiring a College Degree require some indication of mastery
0.3
of critical knowledge, skills, and
High single digit CAGR
0.0 0% abilities in technology
over the last 5 years 80%
2013P
2014P
2010
2002
2006
2008
2009
2011
2003
2004
2012P
2005
2007
2015P
65% of todays grade school children

in the US will end up at jobs that
20% 30% havent been invented yet
5% 20%
3%
% Perceived importance to students in order to achieve academic success % of adults with a college degree
1900 1950 2011 % of jobs requiring a college degree
Source: EDUCASE, Pearson, Microsoft Education, US Department of Labour, IDC, UNESCO, Babson Survey Research Group, Research reports,
IBIS Capital | Global e-Learning Investment Review Nielsen, US Department of Labour, GSV Education, Apollo Group, Gartner, Berg Insight 21
Significant m-Education Growth and App Downloads
m-Education Market by Region(1) Key Points
($bn) Serious Gaming & Gamification

40.0 37.8 2009-2011 CAGR engages the learner by focusing on
35.0 cognitive learning and in most cases
North America: 31%
30.0 28.3 pushes learners with results-driven
25.0
Europe: 29% solutions
21.4
20.0 16.2 Developied Asia-Pacific: 23%
The Serious Gaming & Gamification
15.0 12.4
9.5 Emerging Asia-Pacific: 54% sector is forecasted to grow from
10.0 7.3 $2.0bn in 2012 to $7.4bn in 2015
4.4 5.6
3.4 Latin America: 54%
5.0
0.0 Middle East & Africa: 50% Games and simulation based tools are
2011 2012P 2013P 2014P 2015P 2016P 2017P 2018P 2019P 2020P expected to grow at a 37% CAGR to
Free Education App Downloads(2) Paid For Education App Downloads(2) 2020
2009-2011 CAGR (%) 2009-2011 CAGR (%)
Education app downloads are greater
News 342 Business 221 than the overall average in both free
Travel 270 Healthcare & Fitness 213 and paid for downloads
Education 239 Music 212
Healthcare & Fitness 234 Social Networking 206
Lifestyle 232 Books & Reference 201
Social Networking 223 News 175
Books & Reference 226 Entertainment 185
Music 226 Education 180
Business 193 Sports 174
Sports 177 Lifestyle 171
Entertainment 175 Games 156
Games 145 Travel 136
Overall average 188 Overall average 178
Source: McKinsey, Research reports

IBIS Capital | Global e-Learning Investment Review (1) m-Education includes all internet connected devices, such as smartphones or tablets 22
(2) List of categories not exhaustive
Distribution of Companies
Breakdown of European e-Learning Companies by Country in 2012

Key Points
Kompass International found c.3,000

1,000 European companies in the e-Learning
sector
750 671
532
500 378
Polands government is investing
303 heavily with the aid of EU structural
250 127 109 104 funds into e-Learning and learning
98 92 92 88 84 76 64 54
technologies for education
Denmark
Spain
France
Germany
Italy
Other
Poland
Belgium
Slovakia
Norway
Romania
Finland
Sweden
Czech Republic
UK
The UK market has approximately 260

e-Learning software development
companies, more than double France
(2.5x), the next largest market in
Breakdown of European e-Learning Companies by Sector in 2012 Europe
Despite being the largest market in

1,000 908 Europe, the number of UK e-Learning
862
software development companies have
750 fallen by 11% p.a. for the last 2 years, in
part due to consolidation within the
industry
500 430
321 350
250
Software for Software Consultants Training courses Language Web-based

education and courses training
training
Source: Kompass International

IBIS Capital | Global e-Learning Investment Review Note: The figures represent the companies who have registered with Kompass International, and should not be taken as a true 23
reflection of market size and activity. Nevertheless it is a good indication of activity within markets in the absence of other comparable data sets
Deal Activity Driven by Subsector Consolidation
Sector
Consolidation e-Learning Consolidation Curve
Sector Launch Sector Growth for Scale Sector Consolidation Sector Equilibrium
Assessment Training BPO

High
e-Learning-led Training Providers Authoring Tools
Tutoring Content Developers
Lecture Capture & Retrieval Tools e-Textbook
e-Portfolios Social Media in Education Learning Management Systems

Medium
Open-Source Learning Repositories Learning 2.0
Mobile Learning Virtual Environments
BYOD Social Learning Platform for Education

Quantum & Affective Computing
Adaptive Learning Serious Gaming / Gamification
MOOCs Curation and Content Accessibility Tools
Low
Open-Source SIS Assessment & Analytics Tools Expected

Deal
Campus App Store Student Retention CRM
Activity
- VC investment (high - Growth equity investment - Leveraged buyouts - More mature M&A/
risk, high return) - Higher volume, mid-market strategic (medium risk, medium investment market
- Some small M&A M&A return) - Cost focus
- Low volume, larger - Alliances or spinoffs
scale strategic M&A
Source: IBIS Capital, Learning Light, Bersin & Associates, Gartner

Education Giants Growing Over the Years
Education Revenue
Education Revenue(1)
Company 2011 FY ($bn) 2004 2011

($bn) CAGR (%)
Scholastic Capella Blackboard
30.0
K12 Cengage Career Education 13.7% 14.5%
McGraw Hill Kaplan Benesse 6.9 19.6%
Apollo Group Pearson 74% 75%
13.3%
Pearsons Education Operating 25.6 25.5 4.7 14.7%
Margin (%) (1) 74%
25.0 Pearsons Education Revenue as a %
of Total Revenue (1) 13.0% 23.3
3.7 8.9%
13.7% 71% 6.6 6.9
13.9%
63% 20.1 2.5 11.7%
20.0
13.3% 63% 6.1
18.6
63% 18.0
2.3 (0.6%)
4.5
16.5
4.9 4.7
14.9 5.2 1.9 3.6%
5.0 4.0
15.0
4.0
3.1
12.4 4.0 1.9 3.4%
11.4 3.2
2.5 2.7 3.7
2.3 3.1
10.1 2.9
3.1% 4.3 0.5 32.2%(3)
10.0 1.8
4.4 2.1 2.1 2.3 2.9
57% 2.6 2.5
3.8 2.0 2.3
6.6 1.4 1.7 0.5 (2) 25.2%(3)
1.3 2.0
1.1 2.4 2.3
1.0 2.4
0.8 1.8 2.6
2.7 2.5
5.0 3.1 1.8 2.7 0.4 20.3%
1.9 0.8 2.4 2.1 1.9
1.8
0.6 1.7
0.6 0.5 1.9 1.9
0.4 2.3 1.5 1.7 2.0 1.9 0.2 (6.5%)
2.3 1.7 1.9
2.2
2.0 1.5 1.5 1.6 1.1
0.8 1.2
0.3 0.5
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Company data, Capital IQ, Annual Reports

IBIS Capital | Global e-Learning Investment Review (1) Refers to restated figures where relevant. Revenue figures are converted at historical exchange rates 25
(2) Based on analyst estimates of Blackboards 2011 FY revenue
(3) Refers to CAGR from 2008 - 2011
Global e-Learning M&A Activity
Total Deal Value and Volume of e-Learning M&A Transactions Key Points
Since 2007 and above $20m
47% 13% 56% 68% 74% 75%
Since 2007, 61% of total targets were
acquired by strategic buyers
24
25.0 23 25
20.5 North America dominates activity by
19 19
20.0 20 value and number of deals
15.0 15 EV/EBITDA multiples for e-Learning

10.5
have come down as the market has
9.2 9 8.5
10.0 8 10 become more developed
4.2 e-Learning maintains significant

5.0 3.1 5
2.4 2.1
1.2 0.7 1.6 0.7 premium over traditional education
0.0 0
2007 2008 2009 2010 2011 2012 Since 2007, Pearson has acquired 15
Total Deal Value ($bn) e-Learning Deal Value ($bn) companies; 11 of them were acquired
Volume (Total) e-Learning as a % of Volume after 2010 and all were digital-based /
e-Learning businesses
e-Learning as a % of
44.6% 88.1% 60.3% 38.2% 6.7% 36.4%
Total Deal Value
Global Education M&A Volume by
% of Total Volume: Sector Since 2007
North America 36.8% 25.0% 44.4% 52.6% 43.5% 79.2%
Europe 31.6% 37.5% 11.1% 21.1% 34.8% 12.5%
% of Total Deal
Value: Management
North America 85.0% 66.7% 27.5% 56.6% 86.0% 95.6% Distribution Systems
Europe 10.2% 22.3% 46.1% 14.2% 5.7% 2.5% 61% 26%
EV / EBITDA
(Mean): Content
e-Learning 27.0x(1) NA 13.8x 15.3x 12.7x 10.2x 13%
Traditional Education 12.5x 14.4x 11.2x 14.2x 6.3x 7.1x
Source: Press releases, SEC filings, Capital IQ as at 31 December 2012

IBIS Capital | Global e-Learning Investment Review (1) Explained by one transaction namely, Pearsons acquisition of eCollege.com 26
Recent e-Learning Fundraising Summary
Direct Investment and Deal Volume Since 2007(1)

Key Points
($m) The US is the most active global

Total Capital Raised ($m) Volume
6,000 150 fundraising market for Education,
130
accounting for 58% of total deals, with
5,000 120 high growth markets, India and China
91 94
4,000 trailing with 12% and 9% respectively
90
65 67 67
3,000 2,366 Europe accounts for 6% of total
60
2,000 1,435 fundraising volume with the UK
1,341
969 999 1,007
30 leading and accounting for 2.1% of total
1,000
fundraising volume
0 0
2007 2008 2009 2010 2011 2012 Private companies are receiving
significant attention and account for
Global Education Fundraising Volume Global Education Fundraising Volume 82% of total fundraising activity by deal
by Geography Since 2007 by Sector in 2012 volume since 2007
The two largest fundraisings in 2012

12.0% Other were Desire2Learn / NEA, OMERS
Management
11.3% ($80m) and FoxyP2 / Insight,
Systems
China 19%
8.9% Redpoint, Flybridge, Kaszek ($43m)
4.7% Distribution Content

71% 10%
US
58.0% 3.0%
UK
2.1%
Source: Capital IQ, as at 31 December 2012

IBIS Capital | Global e-Learning Investment Review (1) Refers to global equity investments where transaction values are disclosed and are above $1m 27
Industry Overview
Industry
Content Management Systems Distribution Customers
Structure
Key Regulatory/Curriculum Scale Online Cost

Affecting Corporate Requirements Complexity Free/Paid Level of Qualification
Factors
Consumer Requirements Efficiency One-to-One/One-to-Many Flexibility
Type of
Publishers Software Platform Immersive Learning
Business
Content Tools MOOCs
Open Source Smart Technology Learning Portal

Sample of Industry Players
Management
Content Distribution Customer
Systems
Content
Management
Systems
Distribution

e-Learning Subsector
Content

Content: Industry Overview
Industry
Structure

Factors
Type of
Business
Content Tools MOOCs

Content: Dashboard
Management
Subsector Definition Content
Systems
Distribution Customer
Content involves the production of materials Market Size Key Industries and Companies
that will be used in a learning environment,
typically in an educational institution or for Publishers Developers
$4,435bn
learning & development programmes in a
Global education expenditure
company
The standards are set, in the main, and

7.4%
upheld by government and/or government Global education expenditure
approved organisations that address 2012-2017 CAGR
regulatory, curriculum, corporate and
consumer requirements $90.9bn
e-Learning 2012
Publishers are key players in content
creation and address the entire education 23.0%
market e-Learning 2012-2017 CAGR
Recent M&A Activity
Technology is enabling new forms of $3,719m Date Target Acquirer
EV EV/
($m) EBITDA
publishing, e.g. via video or e-Books, which Print Book Revenues 2011
publishers need to adapt to Nov-12
McGraw-Hill Apollo Global
2,747 7.1x
Education Management
26.1%
Nippon Mirai
e-Books (as a % of Print) 2011 Jun-12 ALC Press
Capital
65 4.7x
OJSC
107.5% Nov-11
Publishing
Olma Media 72 NA
e-Books 2006-2011 CAGR

Carnegie
Aug-11 Apollo Group 75 NA
Learning
Pearson
Feb-11 Sistemas do Pearson 330 NM
Brasil
Source: IBIS Capital estimates, GSV education report, Ambient Insight research, Research reports, American Association of Publishing
Content: Industry Players
Management
Systems
e-Learning
Standards
Publishers
Developers
Authoring Tools
Content
Aggregator
Libraries &
Repositories(1)
(1) These companies aid distribution and have been included for completeness
Content: Key Affecting Factors
Management
Systems
Regulatory / Curriculum Drivers Authoring Tools

1 4
The Tin Can Project(1)
is setting new technical industry Technological developments provide tools for
standards for e-Learning software teachers to create digital content
Government initiatives will act as catalysts to Teachers need to acquire new skills to respond to
encourage mass adoption of e-Learning technology now available
Teachers influence on the adoption of e-Learning will Navigating through different options is a complex
be dependent on the teaching methods introduced issue for learning establishments
Consumer Requirements Developers

2 5
Consumers need education and supporting Harder to generate significant value from content IP
materials to be available at affordable rates due to increased competition and easier consumer
Recognised credentials and acknowledged standards access
Having access to quality learning content that Business model for developers typically project-
addresses skills requirement based for specific clients
Interactive content with adaptive learning
programmes to become increasingly available
Corporate Requirements Content Aggregators
3 6
Specialised training and skills programmes can be e-Libraries and databases of learning content will
expensive; e-Learning to provide more efficient give users a single point of access to resources
tailored solutions Ease of access and relevance of materials will
Performance measurement and analytics serve as an determine the usefulness
important aspect to assessing ROI on corporate
training
(1) US project dedicated to defining the e-learning software specification that allows learning content and learning systems to speak to each other
IBIS Capital | Global e-Learning Investment Review in a manner that records and tracks all types of learning experiences 34
e-Books and the Book Rental Market
Management
Systems
Print Book and e-Book Sales by Value
($m) Print books e-Books e-Books (% of print books) Key Points

6,000 26.1% 30.0%
Access to published learning content is
5,000 25.0%
more important than the ownership of
4,000 20.0% the same content
3,000 3,719 15.0%
10.0% In the US, textbook prices have
2,000 10.0% increased at twice the rate of inflation,
970
1,000
3.4%
5.0% leading to online textbook rental sites,
that significantly reduce the cost of
0 0.0% access
2006 2007 2008 2009 2010 2011
Publishers seeking to introduce a

Comparison of the Potential Opportunity for Publishers to Switch to e-Books(1)
Illustrative sample of a typical 200 student class over a 3 year period hybrid model to preserve margins (see
table). However, migration to digital
Print e-Book Substitute Hybrid Solution continues to accelerate as per the
graph, implying diminishing value from
Addressable Units 600 600 600 physical textbooks
Units Sold 240 540 540
Savings off retail price of Savings
Average Sale Price ($) 115 54 98 print textbook by purchase of:
Potential savings from textbook (%)
alternatives
Rental books are outlined below: 61.3%
$/Addressable Units 46 49 88
e-Book 52.3%
Total Revenue ($) 27,600 29,344 52,920
e-Reader 38.6%
Gross Margin (%) 75% 85% 81%
Used books 24.9%
Source: IBIS Capital analysis, American Association of Publishing, Cengage, Student PIR
Content: Case Study 1
Serious Gaming
Management
Systems
Engaging Learning Solutions in a Workplace Environment
Company Overview Serious Games Interactive (SGI) provides custom-made client games and develops its own
Research-based game developer with 25 educational series across a range of ages from 2 to adult. The company provides:
employees targeting organisations in both the
private and public sector in over 50 countries.
Client Projects SGI Projects
The company has completed 75 successful
client projects, launched 18 own-brand
products, has 5 ongoing research projects and Academic Cultural Global Conflicts
won 15 awards for its excellence
Health Education Social Playing History
Clients
Market Corporate Trunkys Adventures
Technology Platform Unity and Flash based
Case Study
Challenge: Nykredit, a leading Danish finance institution with 4,400 employees,

required an innovative and engaging new employee programme
Solution: A simple and fun reality game that included puzzles and other tasks to learn
about the companys corporate structure, products & services, company
history and distribution channels. The proposal targeted all new employees
and lasted around 60 minutes over a web-based programme
Source: Company data

Apple in Education
Management
Systems
Features
Take free courses created and taught by instructors from leading
Company Overview universities and other schools
The iTunes U application serves as a powerful See all assignments and updates from the instructor in one place,
distribution system for high quality content. It and check off assignments as you complete them
is the worlds largest catalogue of free Take notes and highlight text in iBooks and see them consolidated
education content with: for easy reviewing in the iTunes U app
over 500,000 free lectures, videos, books, Take course notes in class or while playing audio or video lectures
and other resources on thousands of inside of iTunes U
subjects from Algebra to Zoology Access course materials, including: audio, video, books, apps, new
collections from education and cultural documents & presentations and iBooks textbooks for iPad
institutions in 26 countries including Share your favourite courses with friends using Twitter, Mail
Stanford, Yale, MIT, Oxford, UC Berkeley, and Messages
MoMA, the New York Public Library, and
the Library of Congress The Open University on iTunes U(1)
58.8m total downloads
iBook Author 7.8m unique downloaders
206,100 downloads per week
Authoring tool that enables people to create
423 OpenLearn study units representing over 5,000 hours of study
multi-touch textbooks
59 iTunes U Courses
Cumulative Downloads and Unique IPs Geographical Breakdown of Downloads
(m) UK
Downloads Unique IP US 15.4% China
60.0 21.0% 9.1% Australia
5.6%
40.0 India
Canada
2.3%
20.0 2.9%
Korea
2.4% Germany
0.0 Japan
Russia Other 2.8%
2008 2009 2010 2011 2012 2.6%
2.5% 33.4%
Source: Company Data

IBIS Capital | Global e-Learning Investment Review (1) Open University 37
Resource Library & Professional Community
Management
Systems
The Largest Network of Teachers in the World
Company Overview TSL Education engages with the education sector in a broad range of activities:
TSL is the UK's leading educational publisher
and host to the worlds largest network of Communities Resourcing
teaching professionals. The company manages The largest single-profession social 560,000 resources with an average of
the largest database of user-generated teaching network in the world, in the single- 33,000 added each month (70% UGC(2))
resources and is the UKs leading online largest profession in the world 200m resources downloaded, with 100m
recruitment platform for education 2.3m registered users growing by 18,000 resource downloads in the past year
a week (from an average of 150 countries) 7 resources downloaded every second,
Teachers from 197 countries 3.3m a week
Key Commentary:
7.7m monthly visits and 62m page views
Its by teachers, for teachers, and is a free,
easy-to-use source for classroom resources. It
will become every teachers go-to online
destination for the support they need. Publishing Recruitment
#1 UK weekly education publication #1 for UK education hiring solutions
We searched the whole of the USA. We could #1 THE World University Rankings is the 95% of UK secondary head positions
not find a company that understood teachers leading global university ranking system advertised in TES during 2011/12
better - or had a real understanding of how 60% of revenue comes from online and
technology can help them be even better. TSL is as profitable today as it has
ever been in its history
Randi Weingarten, AFT President
For every 1 taken in advertising
revenue, TSL upsells by 43p
It is generally reported that 50% of teachers
leave the teaching profession within their first
5 years because of a lack of support, deep
TES iboard is a library of free teaching resources, aimed at ages 4-11
education budget cuts and other frustrations.
A premium subscription is available, which includes exclusively
This teacher turnover costs $7.3bn annually, produced content including lesson plans, mapped to the curriculum
with unknown costs to childrens education(1) for less than a pound a month

IBIS Capital | Global e-Learning Investment Review (1) National Commission on Teaching and America's Future 38
(2) User Generated Content
Content: Conclusions
Management
Systems
Personalisation Gamification
1 4
e-Learning will allow for increasing levels of The e-Learning environment allows for the integration
personalisation. Textbooks will become replaced by of games and entertainment to create an immersive
interactive learning programmes that link to the experience that can accelerate the learning process.
progress of the individual student as well as to the This creates new content opportunities to provide
reference data collected from other students interactive edutainment
Lifetime Learning Accreditation

2 5
Educational content will need to bridge the gap from As content becomes more accessible and with the
the academic to the skill based requirements of the arrival of MOOCs, the value of accreditation from a
workplace. Bridging the gap will provide the content recognised authority or brand will be increasingly
owner the opportunity to keep the relationship with important. Publishers will seek to align content with
the consumer as they move from school to the accrediting bodies
workplace
Social Content Next Generation of e-Learning

3 6 There are current initiatives to tag and store online the
Content, learning experiences and peer-to-peer help
from a network of users within the educational full range of learning experiences from educational
ecosystem have meant that content is no longer courses to indirect skill development that an individual
standalone material but instead evolves with input is exposed to over a lifetime. In the US, this next
from its users. Managing content in this way is leading generation of e-Learning is being termed the Tin Can
to a range of new disruptive businesses initiative. Publishers will need to adapt to these new
standards and applications

Management
Systems

Management Systems: Industry Overview
Industry
Structure

Factors
Type of
Business
Content Tools MOOCs

Management Systems: Dashboard
Management
Systems
A software platform used in academic Market Size Key Industries and Companies
institutions and corporates to manage the
learning process and associated content 9.5% Software Technology
US training budget 2010-2011 growth rate
A platform can be enabled to tackle various
tasks including: administration, Single Biggest Expenditure
procurement, content management, Learning Management Systems
reporting, syncing, marketing, authoring
tools, repositories / content, libraries, $1,939m
communities, assessment, analytics, etc Global LMS market size 2012P
LMSs are based on a variety of development 14.7%

platforms such as Java EE, Microsoft .NET, LMS 2011-2012 growth rate
PHP and usually employ a database
backend. Some systems are free and open- 229 Customers Recent M&A Activity
source others charge a software licence fee Accounted for by the Top 5 LMS vendors
EV EV/
Date Target Acquirer
($m) EBITDA
Although LMSs vary and are built for 132m Users
Oct-12 EmbanetComp Pearson 650 NA
specific purposes within the corporate and Accounted for by the Top 5 LMS vendors ass
(1)
academic environment, they share a similar

Oct-12 Deltak edu John Wiley & 220 NA
set of characteristics described above 2013P Global LMS Market Share Sons
Cornerstone
SumTotal SAP OnDemand
9% 8% Oracle Aug-12 Campus Labs Higher One 41 NA
5%
The next generation of LMSs are focusing 7% Saba Holdings
4%
on: how to manage learning over extended Jun-12 Active Internet Spectrum 55 NA
periods (work and academic); to create Blackboard Technologies Equity
3% Investors
adaptive learning models; and, to create Other
ACS (Xerox) May-12 Certiport Pearson 140 NA
record stores of individuals learning 58% Skillsoft 3%
3%
experiences from multiple sources
Source: Microsoft, Bersin & Associates

Management Systems: Industry Players
Management
Systems
LMS
TMS
OCMS/OCW
SLMS
Assessment &
Analytics

Management Systems: Key Affecting Factors
Management
Systems
Scale Market Confusion

1 4
Requirement to perform a multitude of tasks across Evaluation of alternative LMS platforms is an
large user bases important and complex process
Many LMSs offer resource planning and LMS vendors seek to differentiate by adding
management across the firm from scheduling functionality e.g. mobile learning, social learning or
courses, allocating and reminding learners about configuring for specific genres such as video-based
courses and managing physical learning resources learning
Complexity Corporate Requirements

2 5
Alternative formats and teaching techniques Measuring the Return on Investment is key to LMS
required to deliver personalised learning Ongoing performance management and monitoring
experiences of users within a LMS can provide data on
Big data analytics required to enhance efficiency and effectiveness that corporates will require
create adaptive learning environments Flexibility to adjust training as corporate
Easy to use feedback required for effective requirements change over time
management oversight
Efficiency Consumer Requirements
3 6
Human resource management within developed Students looking for content that addresses their
economies will increase the adoption of LMSs to individual needs and is accessible in multiple
improve efficiency formats (mobile, tablet, desktop)
Specific skill requirements can be tailored within the Feedback to track progress and benchmark against
e-Learning environment to enhance the suitability of peer group
training to the workplace

Management Systems: Case Study
Lore, More Than Just the Facebook of Education
Management
Systems
Social Learning Management System for Both Students and Instructors
Company Overview Lore creates a social network around the participants engaged in
Lore provides an online learning platform individual courses; both teachers and students
where educational content can be managed The market in the US is dominated by Blackboard which has a
using social networking features market share in excess of 50%
The business was launched at the end of 2011 and has attracted
A competitor to Blackboard, Lore is currently approximately $6m of venture funding
being used by over 600 instructors at various The platform allows teachers to create a shared environment in
institutions which a course can be taught, discussions facilitated and materials
shared
Social network and communities education The challenge is the business model, as the site is accessible for
market size is currently c.$1.0bn and is free and carries no advertising. The business is dependent on
estimated to grow at a 41.1% CAGR to $5.6bn achieving a critical user mass to create ancillary chargeable services
by 2017
The layout is simple and replicates the classic clean look of Facebook:
Key Commentary:
The Internet is reshaping how people learn,
and Lore is one of the companies making that
happen. My course at Stanford is using Lore
and we can see dynamics changing already.
- Peter Thiel, seasoned entrepreneur and
investor
People are actually kind of hanging out on it,

which is what I really wanted to happen.
- Peter Mandaville, professor at George
Mason University

Management Systems: Conclusions
Management
Systems
SaaS/Cloud Model Dominant Link from Academic to Corporate

1 4
The SaaS/Cloud solutions are dominant in the e- There is little integration between the e-Learning
Learning market. The SaaS/Cloud e-Learning vendors market place for the corporate user and the academic
have grown strongly and have been able to deliver institution. As LMSs evolve in order to deliver
solutions from SMEs to large institutions. Particular lifelong learning systems the two environments of
advantages for the Cloud has been independence from academia and corporate will need to integrate learning
internal IT departments, rapid innovation and systems
flexibility
Big Data Analytics Blended Learning Solution
2 5
The increasing sophistication of analytics combined The blended solution is where formal content and
with the big fall in data storage costs is changing the e- instruction is delivered part online and part face-to-
Learning LMS environment. The learning path for a face. A European study(1) revealed that 76% of
user within a LMS can be personalised to their own corporate users preferred this method and planned to
individual requirements and learning aptitude based increase usage. In the US, colleges are starting to trial
on data collected from a vast network of other learning flipped classrooms delivering a blended solution
experiences
Learning Record Store (LRS) Business Models
3 6
The US is seeking to develop a new generation of The SaaS/Cloud model for LMS allows for both
software specifications to manage an individuals subscription based services and freemium models. The
learning experience across multiple formats and latter will depend on achieving critical mass to layer on
environments. The initiative has been called Tin Can chargeable ancillary services. Particular to corporates,
and is an API that records learning events for storage subscription-based models will allow LMS businesses
in an LRS. The next generation of LMSs will emerge to attract software company valuation multiples
out of these types of initiatives
Source:
IBIS Capital | Global e-Learning Investment Review (1) CrossKnowledge, Fefaur and Ipsos 46
Distribution

Distribution: Industry Overview
Industry
Structure

Factors
Type of
Business
Content Tools MOOCs

Distribution: Dashboard
Management
Systems
Distribution addresses the link from content Market Size Key Industries and Companies
creation to end-user consumption. e-
Learning content can be distributed to any Online MOOCs
connected device 2.4bn
Global internet users at 30th June 2012
Approximately 35% of the worlds 7bn
population are users of the internet. Over 107.5%
1bn are based in Asia. The highest
e-Books 2006-2011 CAGR
penetration rates are in North America
(78%), Oceania (67%) and Europe (63%) Serious Gaming Immersive
257.1%
m-Education(1) is an increasingly important 2011A-2012P student tablet ownership
sector for distributed learning. e-Learning growth
apps provide a basis for anytime, anywhere
learning 30.8%
2011A-2020P m-Education(1) growth Recent M&A Activity
The US and Europe account for over 70% of
EV EV/
the global e-Learning industry. The Asian e- 6.5m Date Target Acquirer
($m) EBITDA
Learning market is expected to reach
Students taking at least one course online Sep-12 Chelsea Sovereign 48 NA
$11.5bn by 2016 Independent Capital
College
41.7% Aug-12 Explore Graphite 48 NA
The three largest US academic players offer
universities and teachers the ability to Global Fortune 500 companies used Learning Capital
provide both domestic and international technology during formal learning hours May-12 I DRIVE Compass 73 NA
SAFELY Partners
reach for their courses
May-12 GlobalEnglish Pearson 90 NA
Outside of the US, Open University, one of
the oldest distance learning providers, is May-12 Casterbridge Bright 114 NA
Nurseries Horizons
launching FutureLearn in 2013 as the Family
UK/European response to the US initiatives Solutions
Source: Cegos, McKinsey, Microsoft, Babson Survey Research Group, American Association of Publishing, Ipsos, CrossKnowledge, ASTD,
IBIS Capital | Global e-Learning Investment Review Internet World Stats 49
(1) m-Education includes all internet-connected devices
Distribution: Industry Players
Management
Systems
Online
m-Education(1)
MOOC
Immersive
Learning
Serious
Gaming /
Gamificaiton
e-Books &
Rentals
(1) m-Education includes all internet-connected devices

Distribution: Key Affecting Factors
Management
Systems
Available Audience Immersive Learning

1 4
Falling costs in PC and mobile devices combined Immersive Learning provides a simulated real world
with widely distributed internet access has created a environment in which teaching or skills training can
global market for academic and corporate be provided. 2-way interaction is available between
e-Learning teachers and students, as in a normal classroom
At the same time there is a digital divide in both In the corporate environment, virtual learning allows
developed and undeveloped economies which limits complex workplace skills such as for the aviation
access to certain groups industry to be taught in a simulated environment
Corporate vs. Academic Social Content
2 5
Corporate demands for bespoke e-Learning Peer-to-Peer learning provides the social networking
programmes for discrete audiences differ from the benefits to the learning process, as users access their
academic opportunity to reach much wider student peer group for problem solving and assistance
populations The networked environment allows for the
The student as a consumer leads to the emergence of collaborative sharing and distribution of content
freemium models as opposed to the corporate buyer Curation becomes important in managing the user
that is likely to be on a SaaS-based subscription value of social content
Government Funding Accreditation
3 6
e-Learning provides a cost efficient way of As e-Learning becomes more widespread
distributing education more widely. However, a accreditation will become increasingly important to
government funding approach based on physical the end user, both individual consumer and
institutions will need to be realigned corporate, to ensure the value of a completed course
In the US it is estimated that 85% of every dollar is recognised
spent on classroom training is spent delivering it(1) Accreditation will be an important chargeable
service in the e-Learning ecosystem
(1) Bluedrop Performance Learning 14 November 2012

Distribution: Case Study 1
Massive Online Open Courses
Management
Systems
Sebastian Thrun
In 50 years there will be only 10 institutions in the World Co-Founder & CEO,
delivering higher education Udacity
Company Overview
18 online courses available
800,000 students enrolled in Udacity Bringing accessible, engaging and effective higher education to the world
5,500 videos online, the most popular of
which have been translated into 10 Udacity focuses on providing free online-only computer science courses to a global audience
languages of students who may or may not have had the access to higher education. The lectures
Global reach to over 190 countries encourage self-paced learning through a variety of methods with the ultimate goal to be
certified and further connected with job opportunities, at a low cost
Key Competition Statistics
The teaching methods include:
Short video lectures
33 partner universities
Take quizzes and other game-based education tests
Interactive Q&A sessions/self-study groups
1.7m registered students
Homework assignments
4 partner universities Is the MOOC Business Model Self-Sustainable? Discussion Points

Students: - Adopt the freemium model and the education for free
370,000 unique learners
- Charges include the cost to receive credentials and additional services
University: - Separates teachers and researchers
- Lose innovation by reducing number of professors
Employers: - Tailor learning towards courses
- Course credibility at question
Licensing: - Sell the course, part of the course or customised versions to enterprises
- Sell use of platform itself
Advertisers: - Access to specific demographics for marketing by sponsoring a course
Picture of the day: Udacity Students in West Africa - Disruptive to education quality

Free One-to-Many Video Learning
Management
Systems
YouTube Teaching Videos Disrupts the Classroom
Company Overview Khan Academy started when Salman Khan added YouTube
An educational non-profit focused on videos to teach his cousins on various topics. The videos were
delivering online micro lectures via video public and as viewership and engagement grew it became evident
across a variety of subjects: that there was demand for simple, self-managed video-based
learning. Ultimately, teachers started to use Khan Academy to flip
c.215m lessons delivered the classroom where lectures were watched online as homework and
Over 3,600 videos problem-solving tasks were down in the classroom, reversing the
Global classroom traditional method for teaching
Assessment, Reviewing and Allocating Resources

Funding Support
A key feature of Khan Academy is that progression is recorded
The OSullivan using tools as highlighted below:
Foundation
Reed Hastings
Anne & John Doeer
Low Barriers To Entry Emerging Themes
Video-based, low set-up costs One world classroom

Start-up approach where companies Feedback loop becoming a key tool for
seek to gain market power through learning through games and analytics
size of reachable network Not-for-profit is not sustainable

Online Marketplace for Education
Management
Systems
Dennis Yang
Democratise Education President & COO,
In 10 years, we believe every expert in the world will be Udemy
Company Overview
teaching online
A leading video-based online marketplace
for skill-based and lifelong learning For Instructors
6,000 courses of which 1,500 are paid Udemy offers world-class course creation tools for instructors
courses (a 7-fold increase on last year) to build a curriculum based on videos, slide presentations,
>500,000 students (a 5-fold increase on last PDFs, documents, articles, links, photos and live conferences
year) Classes can be offered for free or using a paywall, where
Top paid instructor earnings exceed $1m in average prices lie between $20-$200, with the most popular
sales by October 2012 classes attracting more than 500
Top 10 most popular paid instructors, 9 of For Students
which were individuals, earned >$1.6m in Courses cover a wide range of skill-based subjects, including
the last year as at May 2012 business, technical, academic, creative and lifestyle
Udemy collects 30% of a course's gross Study times are self-paced, flexible and delivered on demand
earnings Renowned business leaders such as Yahoos CEO Marissa
Mayer and Facebooks CEO Mark Zuckerberg attract large
audiences for their courses
Recent News:
December 2012 - Udemy raises $12m in Business Model
Series B funding round led by Insight Infinite Skills, the top paid instructor, uses Udemy to supplement its own e-Learning
Venture Partners. Other investors include platform and now generates over $1m in sales, an important milestone in terms of
demonstrating the value of the marketplace model
Lightbank, MHS Capital and Learn Capital
Any content expert can be an instructor, including individuals or companies. This is
November 2012 - Announced a strategic unique to Udemy. Decoupling teaching from researching and rewarding on merit of
partnership with The Jack Welch teaching ability is in line with Sebastian Thruns (Co-Founder and CEO of Udacity)
Management Institute at Strayer University view of e-Learning
to offer online leadership development Partnering with larger publishers and universities provides additional leverage in
November 2012 Launched iPad app content and user acquisition

Source: Company data 54
Immersive Learning: Learn in a Virtual City
Management
Systems
Case Study TCO (Joint Venture between Chevron & Kazakh Government)
Company Overview: TCO was looking for a partner to offer:

24-hours-a-day live English tuition for
Specialist English training specific to oil and gas
adults from 100+ countries
24/7 access to training from multiple locations
Virtual learning environment requiring a PC,
A cost effective, high quality solution
headset and broadband connection
English City has scenarios for everyday life
Languagelab solution delivered:
as well as specific/custom-based
programmes including learning technical TCO employees improved on average 1 English
English for the Oil & Gas and Aviation level after only 19 hours study Languagelab.com
sectors Extremely high engagement: 60% of trainees
Detailed corporate reporting and student studied for over 9 hours a month
data analytics for tracking progress
Next Steps to Scale?
Key Commentary: Growing student and corporate base
A brilliant idea: a multi-simulation, fully- Expand sector expertise specialisation
immersive distance learning environment, Launch new proprietary platform
providing online language learning to a Build Vocational Training capability
global audience
Gavin Dudeney, English Language author
Clients & Partners Key Language Learning Providers
and technology expert
Languagelab is the most innovative language

school in the world
Heike Philip, Co-creator of the EU funded
Lancelot and Avalon projects

Gamification: Educational Gaming
Management
Systems
Company Positioning
Company Overview The first learning and entertainment platform,

Fingerprint acts as a publishing network for providing sharing and engagement opportunities
3rd party content creators in the mobile between kids and grown ups across mobile devices
e-Learning space and the web. Targeting a pre-school audience
The company's technology platform is made
available to 3rd party developers via an easy- The company promotes engagement opportunities
to-use SDK(1) that will allow the content between parents and children as well as the ability to
network to quickly scale monitor use by the children
Offers 19 apps for downloading which have
been played over 37m minutes The company has received approximately $9m of
The company aims to grow to over 50 apps venture funding to date
in 2013 across a range of learning content
including: language learning, reading, Freemium model that has in app ancillary services
maths, science and creativity that users are charged for
Partners
Children's Content Providers
Major childrens content providers are likely to show interest

in this market due to:
High growth markets given growth in e-Learning and gamification
sectors
Investors Rapid expansion of internet-connected devices increasing the
opportunity for monetisation
Existing market access, market power and protective IP rights

IBIS Capital | Global e-Learning Investment Review (1) Software Development Kit 56
Distribution: Conclusions
Management
Systems
Global Learning Strong Corporate Demand

1 4
The barriers for accessing e-Learning are limited only Corporate Training is a $200bn industry of which
by the reach of telecoms infrastructure. e-Learning has $26bn is represented by e-Learning. In Europe in 2011,
a global audience. The implication is that skill sets and 51% of companies delivered one training session via e-
standards will become more universal. Employers will Learning to over 50% of their employees. In the US in
be able to access a far greater range of human 2011, 77% of corporates were using e-Learning. With
resources with ubiquitous qualifications corporate e-Learning market expected to double over
the next 3 years, the opportunity is significant
Competition Creates Innovation Immersive Learning
2 5
Increased competition from e-Learning produces the The ability to provide simulated work environments is
market dynamics to encourage greater innovation just beginning and will provide a whole new generation
within education. The education market has of e-Learning opportunities to the corporate
historically been slow to develop due to the physical environment. Skills can be developed, monitored and
constraints of educational establishments and the top assessed before being used in the workplace. Already
down nature of state planning for education. The the 3D modelling skills from the video games industry
market will now change much more quickly are linking up with immersive learning programmes
Digitisation of Content Extending Distribution
3 6
e-Learning requires digital content. This entails the Wireless connectivity is extending the reach of e-
digitisation of existing content and the creation of a Learning. For example, South Korea, which has one of
new generation of interactive and personalised the highest rated education systems, aims to have
content. We are in a period of transition from old wireless networks in all schools by 2015 together with
school content to the next generation; for a period all curriculum materials available in digital form.
there will be a need for the distribution of both forms Other countries, most notably the US are keen to
of content follow suit
Source: Global Industry Analysts, Fefaur, CrossKnowledeg, Ipsos, Bersin

Pearson Case
Study: a Leader in
Education

Pearson Case Study: a Leader in Education
Overview Inorganic Growth Organic Growth Customer

PEARSON
Pearsons Strategic Positioning

The worlds leading learning company
Company Overview Education contributed to 75% of FY 2011 revenue
Worlds leading education company with Digital contributed to 33% of FY 2011 revenue
over 36,000 employees in 70 countries International presence in 70 countries
Founded in 1844 and based in London Over $1bn of FY 2011 revenue from developing economies
The company generated revenues of 5.9bn
and an EBIT margin of 16.1% in 2011 Key Steps to Consolidate Strategic Positioning
Recently combined Penguin with Investment: Invests heavily in organic growth and M&A. Since 2006, Pearson has
Bertelsmanns Random House to create the invested 0.5bn in organic growth and 2.5bn in acquisitions
worlds largest publishing organisation Technology: Progressive transition to offering digital products and services, accessing
larger and fast-growing technology-enabled content segments. Digital revenue has grown
to 33% in 2011 from 20% in 2006
Group Structure
High Growth International Markets: Continued focus on developing markets in
2011, 11% of revenues were from developing companies ($1.0bn), representing a
significant strategic focus that is not as evident in the other major educational players
Efficiency & Scale: In 2011, Pearson achieved EBIT margins of 16% in large part by
Consumer Business Education changing the business mix to increase exposure to more digital and service based
Publishing Information businesses
Pearsons Acquisition Roadmap
National
Evaluation
Systems
2006 2008 The 2010 2012

Administrative
Assistants Ltd
Chancery Software
Source: Company data, Research reports, Capital IQ

Pearson has been an Active Acquirer to Build Its Education Division
Overview Inorganic Growth Organic Growth PEARSON
Pearsons Share Price Performance over the Last 3 Years

Key Points
() Date: 19-May-2010 Date: 26-Apr-2011 Date: 16-May-2012 Date: 25-May-2012 Since 2006, Pearson has invested
15.0 Deal Value: 112m Deal Value: 140m Deal Value: 95m Deal Value: 58m approximately 2.5bn in acquisitions
EV/Revenue: 1.8x Deal Rationale: EV/Revenue: 2.9x EV/Revenue: 2.1x
EV/EBITDA: 7.0x Product extension into Deal Rationale: Builds Deal Rationale: Builds
and the market reaction has been
Deal Rationale: diagnostic tools and product range and upon English language positive to its increased activity in the
Growing interest in the tailored instruction geographic reach of training business e-Learning space
vocational education professional testing addressing a 2bn market
13.0 sector business
Pearsons strategy has been to enter
markets early and build scale
particularly in fast-growing sub-
categories, emerging economies and
11.0 software-based offerings
Pearson is most advanced in its K-12

offerings. However, the company has
invested across the whole e-Learning
9.0
environment including content, LMS
and analytics
Date: 15-Sep-2011 Date: 21-Nov-2011 Date: 16-Oct-2012
Deal Value: 254m Deal Value: 95m Deal Value: 404m
Deal Rationale: EV/Revenue: 2.3x Deal Rationale:
Product extension into EV/EBITDA:18.3x Strengthens Pearsons
7.0 Deal Rationale: leading position in online
fast-growing virtual
schools market Consolidates market educational services
position in English
learning and adds 54 cities
to Chinese city roster
5.0
Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12
Source: Company data, Press releases, Capital IQ as at 31 December 2012

Pearson has also Delivered Organic Growth
Overview Inorganic growth Organic growth PEARSON
2008 2011 2008 - 2011

Company Subsector Business Description Audience
Students (m) Students (m) CAGR (%)
Web-based assessment, data management,

Formal Testing and reporting system used to predict likely K-12 2.2 4.1 23%
performance in state tests
College-level LMS product, with 2.8m

LMS Higher Education 1.1 2.8 37%
student users in 2011
Online learning product available in a variety

Content of subject areas in line with Higher Higher Education 3.6 7.8 29%
Education courses
Web-based tool that aims at empowering

entire testing programmes, covering both
Formal Testing K-12 1.0 5.7 79%
paper and digital exams from a single user
interface
Instructional software designed for

Content K-12 2.1 3.1 14%
elementary and middle school students
Classroom management tool that allows

teachers to customize a curriculum through
LMS the use of Pearson digital content, school K-12 3.7 6.2 19%
resources and third-party materials in order
to meet regulatory requirements
Source: Company data, Research reports

Valuation and M&A

Activity

Select Market Performances
Index Performance Over the Last 2 Years

Key Points
Index Performance We believe that software companies are

Sofware Players: 33.5% a proxy for where e-Learning
160
Corporate Training: 32.0% valuations will trend, particularly for
S&P 500: 10.3% SaaS/Cloud LMS providers. We have
Education Publishers: 7.2%
created a Software Players index to
US Post-Secondary Education: (64.5%)
140 illustrate the relative performance of
the educational market
120 Corporate Training companies have

seen the strongest valuation
improvement in the last 18 months.
100 The Corporate Training market is a
$200bn industry of which $26bn is e-
Learning. e-Learning in this sector is
80
expected to grow to approximately
$32bn by 2015
60
US Post Secondary Education has
suffered as the adverse economic
40
climate has lead to reduced enrolment.
DeVry, the largest by market cap,
reported Q4 y-o-y revenue decline of
20 15.7% arising primarily from a decline
in total undergraduate enrolment
Source: IBIS Capital analysis, Capital IQ as at 31 December 2012

IBIS Capital | Global e-Learning Investment Review Note: The composition of the indices can be found in Public Company Comparables section starting on page 88 63
Valuation Over Time
EV/ LTM Revenue of Public Competitors Key Points
Median
As before, the Software Players are
Education Publishers: 1.5x US Post-Secondary Education: 1.0x
Sofware Players: 4.3x Corporate Training: 0.8x included to illustrate the valuation
6.0x upside as e-Learning brings in
SaaS/Cloud business models
4.4x
4.0x
Education Publisher valuations have
been fairly consistent proving less
2.0x 1.7x volatile when compared to the others
1.0x
sectors
0.4x
0.0x
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-07
Jun-12
Dec-06
Jun-08
Dec-08
Jun-09
Dec-09
Jun-07
Dec-07
Jun-10
Dec-10
Mar-10
Sep-10
Jun-11
Dec-11
Dec-12
Mar-11
Sep-11
Mar-12
Sep-12
Corporate Training has started to
achieve EV / LTM EBITDA multiples
similar to those achieved by the
Software Players
EV/ LTM EBITDA of Public Competitors
Median On an EV/ LTM EBITDA basis, US
Education Publishers: 7.7x US Post-Secondary Education: 7.5x Post-Secondary Education valuations
20.0x
Sofware Players: 11.3x Corporate Training: 8.5x have fallen dramatically since 2007 and
remain low, due primarily to reduced
15.0x
student enrolment and strict regulatory
9.2x environment
10.0x 8.7x
8.3x
5.0x
4.2x
0.0x
Mar-08
Sep-08
Mar-09
Mar-07
Sep-09
Sep-07
Jun-12
Dec-06
Jun-08
Jun-07
Dec-08
Jun-09
Dec-09
Dec-07
Jun-10
Dec-10
Jun-11
Mar-10
Sep-10
Dec-11
Dec-12
Mar-11
Sep-11
Mar-12
Sep-12
Source: Capital IQ as at 31 December 2012

IBIS Capital | Global e-Learning Investment Review Note: The composition of the indices can be found in Public Company Comparables section starting on page 88 64
Global e-Learning M&A Activity
Total Deal Value and Volume of e-Learning M&A Transactions Key Points
Since 2007 and above $20m
47% 13% 56% 68% 74% 75%
Since 2007, 61% of total targets were
acquired by strategic buyers
24
25.0 23 25
20.5 North America dominates activity by
19 19
20.0 20 value and number of deals
15.0 15 EV/EBITDA multiples for e-Learning

10.5
have come down as the market has
9.2 9 8.5
10.0 8 10 become more developed
4.2 e-Learning maintains significant

5.0 3.1 5
2.4 2.1
1.2 0.7 1.6 0.7 premium over traditional education
0.0 0
2007 2008 2009 2010 2011 2012 Since 2007, Pearson has acquired 15
Total Deal Value ($bn) e-Learning Deal Value ($bn) companies; 11 of them were acquired
Volume (Total) e-Learning as a % of Volume after 2010 and all were digital-based /
e-Learning businesses
e-Learning as a % of
44.6% 88.1% 60.3% 38.2% 6.7% 36.4%
Total Deal Value
Global Education M&A Volume by
% of Total Volume: Sector Since 2007
North America 36.8% 25.0% 44.4% 52.6% 43.5% 79.2%
Europe 31.6% 37.5% 11.1% 21.1% 34.8% 12.5%
% of Total Deal
Value: Management
North America 85.0% 66.7% 27.5% 56.6% 86.0% 95.6% Distribution Systems
Europe 10.2% 22.3% 46.1% 14.2% 5.7% 2.5% 61% 26%
EV / EBITDA
(Mean): Content
e-Learning 27.0x(1) NA 13.8x 15.3x 12.7x 10.2x 13%
Traditional Education 12.5x 14.4x 11.2x 14.2x 6.3x 7.1x
Source: Press releases, SEC filings, Capital IQ as at 31 December 2012

IBIS Capital | Global e-Learning Investment Review (1) Explained by one transaction namely, Pearsons acquisition of eCollege.com 65
Recent e-Learning Fundraising Summary
Direct Investment and Deal Volume Since 2007(1)

Key Points
($m) The US is the most active global

Total Capital Raised ($m) Volume
6,000 150 fundraising market for Education,
130
accounting for 58% of total deals, with
5,000 120 high-growth markets, India and China,
91 94
4,000 trailing with 12% and 9% respectively
90
65 67 67
3,000 2,366 Europe accounts for 6% of total
60
2,000 1,435 fundraising volume with the UK
1,341
969 999 1,007
30 leading and accounting for 2.1% of total
1,000
fundraising volume
0 0
2007 2008 2009 2010 2011 2012 Private companies are receiving
significant attention and account for
Global Education Fundraising Volume Global Education Fundraising Volume 82% of total fundraising activity by deal
by Geography Since 2007 by Sector in 2012 volume since 2007
The two largest fundraisings in 2012

12.0% Other were Desire2Learn / NEA, OMERS
Management
11.3% ($80m) and FoxyP2 / Insight,
Systems
China 19%
8.9% Redpoint, Flybridge, Kaszek ($43m)
4.7% Distribution Content

71% 10%
US
58.0% 3.0%
UK
2.1%
Source: Capital IQ, as at 31 December 2012

IBIS Capital | Global e-Learning Investment Review (1) Refers to global equity investments where transaction values are disclosed and are above $1m 66
Successful Fundraisings in Both Private & Public Markets
Select Disruptive Private Start-ups Attracting Significant Amounts of VC & PE Capital
Date of Last
Total Capital
Year Round /
Target Select Investors Company Overview Employees Domicile Subsector Raised To
Founded Amount Raised
Date ($m)
($m)
Online textbook rental company 2003 300+ Distribution May-12 / 2.4 192.1
Partners with universities to build, administer, and market Management

2005 80 Mar-12 / 26.1 91.2
online degree programmes from traditional offline curricula Systems
SaaS LMS provider catering to K-12, Higher Education and Management

2011 NA Sep-12 / 80.0 80.0
corporates Systems
Adaptive technology that personalises online learning

NA NA Content Oct-11 / 54.0 54.0
content for each individual student
Provides a platform that creates, produces, manages and Management

2007 NA Apr-12 / 85.8 85.8
shares instructional content for students to review Systems
Partners with the top universities in the world to offer

2008 270 Distribution Apr-12 / 22.0 22.0
courses online for anyone to take, for free
Provides free online-only computer science courses to a

1999 300 Distribution Oct-12 / 15.0 15.0
global audience
While Access to Capital in the Public Markets Remains Resilient
Date of Last
2011 FY Total Capital
Year Round /
Target Select Investors Company Overview Revenue Employees Domicile Subsector Raised To
Founded Amount Raised
($m) Date ($m)
($m)
Produces curriculum for online academic

522.4 2000 3,300 Distribution Apr-11 / 125.8 155.8
institutions
Management
Provides worldwide social learning networks 3.6 2011 63 Sep-12 / 12.1 106.1
Systems
Provides intervention curricula, educational

technologies, professional services, and other 172.3 2002 628 Distribution Apr-11 / 20.0 70.0
research-based education solutions
Source: Capital IQ, TechCrunch

Recent e-Learning Fundraising Across Europe & the US
Europe
Date of Total Capital

Capital Year
Last Target Investors Company Overview Domicile Subsector Raised To Date
Raised ($m) Founded
Round ($m)
Online learning platform that combines the best insights

Nov-12 5.1 NA 2010 Distribution 6.2
from the art and science of memory
Oct-12 4.6 Free online community for learning languages 2008 Distribution 9.4
Online language learning service using game mechanics to

Jun-12 3.0 NA Distribution 3.2
engage users into the learning process
Educational platform that connects students, teachers,

May-12 4.0 NA Distribution 6.7
parents and school administrators
Interactive learning company that makes virtual worlds

May-12 3.6 and apps across the Internet and mobile devices designed 2010 Content 9.0
for kids ages 2-12
United States
Date of Total Capital

Capital Year
Last Target Investors Company Overview Domicile Subsector Raised To Date
Raised ($m) Founded
Round ($m)
The joint venture between Barnes & Noble and Microsoft
Dec-12 89.5 that runs the US retailers Nook e-Reader division, its e- 2012 Content 89.5
Book store and its 674 college bookstores
Develops online social, collaborative, and personal

Dec-12 20.0 2007 Distribution 44.7
learning programs
A leading video-based online marketplace for skill-based

Dec-12 12.0 and lifelong learning 2010 Distribution 16.0
Global network of campuses for individuals seeking an

Nov-12 9.8 2011 Distribution 14.1
education in technology, business, and design
Offers online courses focusing on artificial intelligence and

Oct-12 15.0 2011 Distribution 21.1
robotics
Source: Capital IQ, TechCrunch

Buyer Landscape
and Strategic
Rationale

Buyers & Investors with an Appetite for e-Learning
Strategic Acquirers & Corporate VCs
Among the list of potential e-Learning acquirers, Pearson has the

largest M&A appetite, spending over 2.5bn in acquisitions since
2006
Cengage Learning was rumoured to have placed a bid for McGraw
Hills education business in Aug 2012 and acquired Houghton
Mifflin Company's College Division for c.372m in Mar 2007
Beyond pure-play education buyers, technology conglomerates,
enterprise software companies and vertical-specific players have
shown interest in e-Learning M&A
Incubators, Non-Profit Venture Firms and VCs
North American investors leading the way. Opportunity for

investment across Europe and developing countries. Over 3,000 e-
Learning companies in Europe
Beyond traditional VCs that invest across various industries, there
has been an emergence of non-profit philanthropy venture firms,
VCs and incubators solely focusing on the education industry
Private Equity Funds
Bain Capital and Apollo Global both placed bids for McGraw Hills
education business in August 2012 and have acquired in the past
Skillsoft (2010) and Connections Education (2011), respectively
Selected high profile PE transactions include Providences 1.2bn
take-private of Blackboard and Apax Partners and OMERS 3.9bn
acquisition of Thomson Learning

Strategic Rationale
Demand in the Market Investment and Consolidation

1 4
Both in the corporate training and educational With c.3,000 active e-Learning companies in Europe,
markets, research consistently confirms an the entrepreneurial response to the market demand is
increasing demand for e-Learning solutions. In creating a range of new companies and opportunities for
1995, only 4% US corporations were using online investment and strategic acquisitions for established
learning - the figure today is 77%. Demand players. The e-Learning ecosystem is healthy: large
elsewhere in the world is also expected to intensify strategic players making acquisitions, capital markets
responding and the availability of VC funding
Available Infrastructure Government Initiatives

2 5
Internet penetration, mobile connectivity and data Governments are the largest buyers of education
storage are sufficiently pervasive at a price point to services. The cost of education in developed
allow e-Learning to be a highly cost-efficient economies such as the US has gone up significantly
solution. The timing is right for a big expansion in over the last 30 years but with little impact on
the use of e-Learning education results. e-Learning is one of the more
effective ways of addressing this issue, both in terms
of cost and results
More Effective Outcomes The Time is Now

3 6
Content for e-Learning can deliver levels of The education and training sectors are experiencing
personalised learning materials and environments a paradigm shift. The window for new businesses
that have not been possible previously. Engaging and business models is now open. Over the next 5
interactive content is able deliver more effective years the education and training sectors will change
outcomes both at school and in the workplace. e- dramatically
Learning analytics provide the data insight to
demonstrate the return on investment

IBIS Capitals
Lessons for the
Future

IBIS Capitals Lessons for the Future
Free Content e-Learning in Every Company

1 4
The rise of the MOOCs and other peer-to-peer The need to improve skills, meet regulatory
platforms will result in large amounts of educational requirements and manage training costs will result
content becoming freely available. Business models in e-Learning being used across the corporate
will focus on delivering chargeable premium spectrum. The ability to monitor and manage
bespoke and ancillary services training performance will provide the corporate
accountability to assess ROI
Personalisation Accreditation and Brands

2 5
Learning will become increasingly personalised with As the range of e-Learning offerings expand, the
e-Learning harnessing big data analytics to provide need for qualifications and standards to be
interactive learning that is tailored to meet the recognised will become increasingly important. The
individuals learning patterns and aptitude accreditation will become unified over time and
educational brands will reduce to a small number of
global players
Flipped Classrooms Lifelong Learning

3 6
Teaching will change such that programme modules The education process will continue throughout an
will be reviewed by students to build their individuals life. Training and education will be on
knowledge outside of the normal classroom hand to adjust to changing workplace requirements
environment. The classroom will become the arena and career choices. Individuals will maintain a live
for face-to-face discussion of individual log of their learning experiences for their entire life
requirements and open discussion

5 Key Disruptors You Want to Learn About
Company Key Statistics Company Overview Investors
Year founded: 2011 Massive Online Open Course (MOOC)

1 18 online-only courses using rich media, which have
Capital raised : $21.1m
been translated to over 10 languages and being
taught to 800,000 enrolled students in >190
countries
Year founded: 2008 Adaptive Learning Platform

2 Analyses data about performance from students to
adapt learning materials to meet individual
requirements
Year founded: 2010 Serious Gaming / Gamification

3
Capital raised : $4.4m Learning apps that provide an iterative process
within an entertainment format to build knowledge
for education and corporate training
Year founded: 2005 Immersive Language Learning

4 (1) 24-hours-a-day live English tuition for adults from
>100 countries which uses a virtual learning
environment Private Investors
Year founded: 2006 OpenCourseware (OCW)

5 Online micro lectures via 3,600 video across a variety
of subjects that has delivered c.215m lessons to a
global audience
Private Investors
Source: Dow Jones Venture Source, Company data

IBIS Capital | Global e-Learning Investment Review (1) Client of IBIS Capital 74
Appendix

Learning
Management
Systems (LMS)

Learning Management Systems for Education and Corporates
LMS Competitive Landscape

Key Points
Users LMS is a software application that is

typically used to:
centralise and automate
administration
assemble and deliver learning
content rapidly
consolidate training initiatives on a
scalable web-based platform
support portability and standards
personalise content and reusable
learning objects (RLO)
deliver online training and webinars
automate assessment, analytics and
reporting
Education Corporate
Users Users Estimated that $1.9bn will be spent
globally on LMS in 2013
Over 500 providers in the market, of

which only 5 have more than a 4%
market share: Cornerstone-
OnDemand, Oracle, SAP, Saba and
SumTotal
Customers
Source: IBIS Capital Analysis, Learning Light, Bersin & Associates

The Evolution of the Learning Management System Market
Total Global LMS Market

Key Points
($m)
2,500 The global LMS market is expected to
1,939 grow at a 12.0% CAGR from 2009 to
2,000
1,718 2013
1,498
1,500 1,332
1,231
Growth in developed markets is
1,000 estimated to be around the low teens
with certain developing markets
500 surpassing the 20.0% range
0
2009 2010 2011 2012 2013
LMS providers have seen their
customer base shift, increases in the
number of customers with 1,000
The Evolution of the LMS Market
employees and less (from 28 percent
Collaborative in 2009 to 34 percent in 2012) and a
People decrease in the number of customers
Management with 10,000 or more employees (from
29 percent in 2009 to 24 percent in
Audience / Content 2012)
Social Learning Talent Management
Specialists Communities of practice, content, Performance management, competency
Regulatory compliance, industry knowledge-sharing management, succession
verticals, customers & partners European survey indicates that 75% of
companies currently use e-Learning to
Corporate Learning Application
deliver training on core professional
Integrated with Other Learning Components, ERP, HR and Application
Integration skills as well as Health and Safety and
Compliance training(1)
e-Learning Platform
Make e-Learning Possible
Make e-Learning easy
Training Management System

Automate the process of instructor-led training
Source: Bersin & Associates

IBIS Capital | Global e-Learning Investment Review (1) CrossKowlegde, Fefaur and Ipsos 78
The Transformation of Learning Management
Category First Generation LMS Second Generation LMS Next Generation (2012-2015)
Philosophy Centralised (corporate university) Both modularised and integrated Fused with work (LMS as we knew
with talent management processes or it is absorbed and socialised, along
highly specialised (e.g. healthcare, with everything else) and/or highly
with primary usage being learning specialised (e.g. sales enablement,
management). At this point, the extended enterprise training, etc.)
market becomes fragmented
Analytics Simple reports measuring Dashboards with business relevant Big data with complex metrics that
completions data (e.g. skills, gaps, competencies) extend outside the enterprise
Audience Internal (full-time employees) Internal and other workers (full- Extended network (e.g. candidates,
time, part-time and contingent) employees, alumni, customers,
partners, etc.)
Collaboration One-to-one, one-to-many Internal many-to-many interactions Inherent, built in collaboration and
interactions (e.g. email, IM) (e.g. Wiki, social interactivities in communications tools; fusion of
learning; real-time micro- internal and external learning
communication tied to learning enabled by social media and
activities) enhanced security requirements
Delivery Model On-premise, hosted or outsourced On-premise, hosted or outsourced, Support for cloud-to-cloud and
Software as a Service cloud-to-on-premise integration
Delivery Channels Instructor-led, face-to-face and Addition of simulations, advanced Addition of game mechanics, high
online synchronous learning; self- interactivity, multi-media and social fidelity video, presence indicators,
paced (asynchronous) e-Learning interactivities integrated social networks for uniting
and blending of the two work and learning
Device Support Delivered to desktop, laptop (online, Delivered to desktop, laptop, Self-service data delivery from any
offline or CD) smartphones, netbooks (online, screen or surface (e.g. desktop,
anytime) laptop, mobile devices)
User Experience Course and resource management, Search and discovery, decision Fully personalised adaptive learning
catalogues, curricula support, content management, experiences
integration
Source: Bersin & Associates

US Higher
Education Online
vs. Offline
Comparison

Online Versus Offline: US Higher Education Universe
Higher Education Competitive Landscape

Key Points
Online A mix of traditional universities and

Enrolment
online university options including:
OpenCourseWare (OCW), Massive
Open Online Courses (MOOCs), online
accredited courses and online courses
6.5m students studied at least one

online course in 2011 which is expected
to grow at a faster rate than student
enrolment
Private not-for profits play catch-up to

implement blended learning
capabilities
Not For-Profit For-Profit
Is Online Education Critical to the Long-
term Strategy of the institution?(1) (%)
In Plan Not In plan

80%
60%
40%
20%
0%
2010 2011 2010 2011 2010 2011
Offline Public Private not Private for-
Enrolment for-profit profit
Source: IBIS Capital analysis, Company data, Research reports, Babson Survey Research Group
IBIS Capital | Global e-Learning Investment Review Note: The competitive landscape includes a selection higher education institutions 81
(1) In plan indicates that their strategic plan includes online education as a target
Online Versus Offline: US Higher Education Peers
Revenue per Student

Key Points
Average Online Average
($ 000s)
Online institutions have a lower
20.0
revenue per student due to lower
15.0 tuition prices than those at physical
institutions
10.0
Whilst online providers of higher
5.0 education generate lower revenue and
2004 2005 2006 2007 2008 2009 2010 2011
EBIT per student, their EBIT margin
EBIT per Student has been consistently higher than that
($ 000s) of offline providers
4.0
Apollo has one of the highest EBIT per
3.0
students, and by far the highest EBIT
2.0 per online student, likely due to its
scale and higher cost per credit
1.0
0.0
2004 2005 2006 2007 2008 2009 2010 2011
EBIT Margin
30%
20%
10%
0%
2004 2005 2006 2007 2008 2009 2010 2011
Source: IBIS Capital analysis, Research reports

Online Versus Offline: US Higher Education Peers (Contd)
Sales & Marketing per New Enrolment

Key Points
Average Online Average
($ 000s)
Rent expense per student is lower for
5.0
online institutions. Rent as a
4.0 percentage of revenue for online
3.0 schools is about 3% of revenue, versus
2.0 5% for offline based schools
1.0
2004 2005 2006 2007 2008 2009 2010 2011 Student acquisition costs have risen
General & Administration (% of Revenue) c.$1,000 since 2008 to around $4,000
per new enrolment
20.0%
15.0% Advertising is typically about 50% of

sales and marketing costs, with the
10.0%
other 50% made up largely of
5.0% admission counsellor costs
0.0%
2004 2005 2006 2007 2008 2009 2010 2011
Rent (% of Revenue)
8.0%
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008 2009 2010 2011
Source: IBIS Capital analysis, Research reports

Korean
Government
Driving Mass
Adoption of
e-Learning

Government Encourage Mass Adoption of e-Learning in Korea
Koreas e-Learning Market Has Been Growing Steadily

Key Points
(KRWm) The Korean e-Learning market has

2.5
2.2 grown at a steady 9% CAGR from
2.1
1.9 2004-2010
2.0
1.7
1.6
1.5
1.5 1.3 The government is expected to invest
KRW2.2tn in industry over 2012-2015
1.0 to help boost adoption of e-Learning
across the country
0.5
0.0 Education service providers are

2004 2005 2006 2007 2008 2009 2010 working hard to build a stronger
presence in the content business, which
has grown at a 2005-2009 CAGR of
Smart Education Outlook (2012-2015) 24%
2012-2015 Strategic players are seeking horizontal

Plan 2012 Application
Proliferation and stabilisation and vertical integration to consolidate
market power and create synergies
Sejong City Office of
Cloud education Education to establish
System in 30% of schools by System in all schools by along the value chain, e.g. content,
2013 2015
smart school model device distribution, media, and
character businesses
Books developed for middle
Digital textbooks are the
Digital textbook schools by 2014 and Books developed for
centre of smart education
development elementary schools by 2014- high schools by 2015
model
2015
Online examination of Online scholastic

Online classes System organisation
academic ability by 2013 achievement test by 2015
Source: Infides, National IT Industry Promotion Industry, Samsung Securities, Korea Creative Content Agency, Korea Communications Commission,
IBIS Capital | Global e-Learning Investment Review Korea Internet Security Agency 85
Global Language
Learning
Opportunity

Global Language Learning Opportunity
Global Digital English Language Learning 2011A-2016P CAGR by Region

Key Points
The Global Language Learning market

25% was $58.2bn in 2011(1)
20%
Language Learning usually starts in the
15% classroom, however, is now becoming
more relevant for adults as language
10% skills are becoming increasingly
important for employee prospects
5%
0% English Learning is a $35.9bn

North Latin America Western Eastern Asia Middle East Africa marketplace accounting for 62% of the
America Europe Europe
total market size of which, $1.3bn is
digital English language learning
Top 10 Digital English Language Learning 2011A-2016P CAGR by Country
Digital English language learning
revenues are heavily concentrated in 4
50% segments: Self-paced e-Learning, e-
Books, collaboration-based learning
40% and via mobile
30% Malaysia, China, Romania, Ukraine,

Brazil, Poland, India and Russia are all
20% key high growth areas with 2011-2016
CAGRS of above 20% for Digital
10% English
0%
Malaysia China Romania Ukraine Indonesia Brazil Poland India Georgia Russia
Source: Company data, Ambient Insight research

IBIS Capital | Global e-Learning Investment Review (1) Excludes language services generated from localisation, interpretation, translation and other services 87
Public Company
Comparables

Public Company Comparables
Com pa n y Sh a r e Ma r ket Net EV Rev en u e Gr owt h EBIT DA Ma r gin EV / Rev en u e EV / EBIT DA P/E
Pr ice Ca p Debt 2012-13 2011-13 2012 2013 2012 2013 2012 2013 2012 2013
Edu ca t ion Pu bl ish er s
Pea r son 1 4 .6 5 1 1 ,7 5 1 1 ,6 9 0 1 3 ,4 4 1 4 .0 % 4 .9 % 1 7 .4 % 1 7 .7 % 1 .8 x 1 .7 x 1 0 .1 x 9 .6 x 1 4 .1 x 1 3 .2 x
McGr a w -Hill 4 1 .4 6 1 1 ,5 1 5 (3 5 ) 1 1 ,4 8 0 6 .6 % 4 .9 % 2 6 .3 % 2 9 .8 % 2 .3 x 2 .2 x 8 .9 x 7 .4 x 1 6 .0 x 1 4 .4 x
W a sh in g t on Post Com pa n y 2 7 6 .9 9 2 ,0 4 4 (2 0 7 ) 1 ,8 3 7 (6 .1 %) (6 .2 %) 1 1 .0 % 1 0 .3 % 0 .6 x 0 .7 x 5 .6 x 6 .4 x 2 4 .1 x 3 1 .3 x
Joh n W iley & Son s 2 9 .5 3 1 ,7 7 6 464 2 ,2 4 0 0 .8 % 0 .5 % 1 9 .9 % 2 0 .9 % 1 .7 x 1 .7 x 8 .3 x 7 .9 x 1 2 .4 x 1 2 .2 x
New scor p 1 9 .3 5 4 5 ,1 4 7 3 ,3 7 5 4 8 ,5 2 2 3 .9 % 3 .1 % 2 0 .5 % 2 1 .6 % 1 .9 x 1 .8 x 9 .1 x 8 .3 x 2 3 .6 x 1 4 .0 x
Sch ola st ic 2 2 .4 2 710 (7 9 ) 631 (3 .2 %) (3 .3 %) 1 0 .0 % 9 .6 % 0 .4 x 0 .4 x 4 .2 x 4 .5 x 1 2 .8 x 1 4 .7 x
Ben esse 3 1 .4 8 3 ,0 6 0 (9 7 0 ) 2 ,0 9 0 5 .6 % 5 .8 % 1 2 .5 % 1 3 .3 % 0 .5 x 0 .5 x 4 .3 x 3 .8 x 1 7 .3 x 1 4 .7 x
Media n 3.9% 3.1% 17.4% 17.7% 1.7x 1.7x 8.3x 7.4x 16.0x 14.4x
Mea n 1.7% 1.4% 16.8% 17.6% 1.3x 1.3x 7.2x 6.8x 17.2x 16.4x
US On l in e Edu ca t ion
A pollo Gr ou p 1 5 .8 7 1 ,7 8 4 (4 2 2 ) 1 ,3 6 2 (8 .2 %) (9 .2 %) 2 0 .3 % 1 9 .0 % 0 .4 x 0 .5 x 2 .2 x 2 .5 x 6 .9 x 7 .4 x
Copella Edu ca t ion 2 1 .4 1 27 2 (8 9 ) 1 83 (1 .8 %) (2 .0 %) 2 1 .1 % 2 1 .1 % 0 .6 x 0 .6 x 2 .7 x 2 .8 x 1 0 .1 x 1 0 .0 x
St r a y er Edu ca t ion 4 2 .6 0 487 44 531 (2 .1 %) (6 .1 %) 2 4 .3 % 2 2 .6 % 1 .2 x 1 .3 x 5 .1 x 5 .6 x 9 .8 x 1 1 .3 x
Br idg epoin t Edu ca t ion 7 .8 1 422 (2 4 6 ) 176 (1 1 .9 %) (4 .0 %) 2 4 .0 % 1 9 .0 % 0 .2 x 0 .3 x 1 .0 x 1 .4 x 4 .3 x 6 .4 x
Gr a n d Ca n y on Edu ca t ion 1 7 .8 0 7 96 (3 6 ) 759 1 2 .1 % 1 5 .3 % 2 6 .8 % 2 7 .9 % 2 .0 x 1 .8 x 7 .4 x 6 .3 x 1 5 .6 x 1 3 .9 x
A m er ica n Pu blic Edu ca t ion 2 7 .4 0 484 (7 7 ) 4 07 1 1 .8 % 1 5 .8 % 2 5 .0 % 2 5 .9 % 1 .7 x 1 .5 x 6 .9 x 5 .9 x 1 5 .8 x 1 3 .8 x
Media n (1.9% ) (3.0% ) 24.1% 21.9% 0.9x 0.9x 3.9x 4.2x 9.9x 10.7x
Mea n (0.0% ) 1.6% 23.6% 22.6% 1.0x 1.0x 4.2x 4.1x 10.4x 10.5x

IBIS Capital | Global e-Learning Investment Review Note: The figures above have been calendarised to December year end and have not been adjusted for recent acquisitions, share buybacks or dividends 89
Pr ice Ca p Debt 2012-13 2011-13 2012 2013 2012 2013 2012 2013 2012 2013
K-12 Edu ca t ion
Ca m biu m Lea r n in g 0 .8 4 41 1 09 150 1 .4 % (7 .9 %) 1 3 .8 % 1 6 .5 % 1 .4 x 1 .3 x 9 .9 x 8 .2 x n /m n /m

K1 2 , In c. 1 5 .5 0 557 (5 0 ) 5 08 1 8 .4 % 2 2 .3 % 1 0 .9 % 1 3 .2 % 0 .9 x 0 .7 x 7 .9 x 5 .5 x 3 5 .7 x 2 5 .2 x
Sch ool Specia lt y 0 .7 2 14 220 234 1 .5 % (2 .1 %) 6 .8 % 7 .6 % 0 .4 x 0 .4 x 6 .4 x 5 .7 x n /m 1 .1 x
Media n 1.5% (2.1% ) 10.9% 13.2% 0.9x 0.7x 7.9x 5.7x 35.7x 13.1x
Mea n 7.1% 4.1% 10.5% 12.4% 0.9x 0.8x 8.1x 6.5x 35.7x 13.1x
US Post -Secon da r y Edu ca t ion
Edu ca t ion Ma n a g em en t 3 .3 2 414 97 2 1 ,3 8 5 (6 .1 %) (6 .9 %) 1 6 .6 % 1 5 .4 % 0 .7 x 0 .7 x 4 .2 x 4 .8 x n /m 8 .8 x

IT T 1 3 .1 3 3 06 (2 6 ) 280 (1 6 .9 %) (1 5 .1 %) 2 7 .0 % 1 9 .2 % 0 .3 x 0 .3 x 1 .1 x 1 .8 x 2 .1 x 3 .8 x
DeV r y 1 8 .0 0 1 ,1 4 2 (1 9 0 ) 952 (0 .7 %) (2 .5 %) 1 6 .9 % 1 5 .2 % 0 .6 x 0 .6 x 3 .6 x 4 .1 x 1 1 .0 x 1 0 .2 x
Cor in t h ia n Colleg es 1 .8 6 159 56 216 2 .6 % (0 .9 %) 8 .1 % 8 .7 % 0 .2 x 0 .2 x 2 .2 x 2 .0 x 9 .6 x 6 .5 x
Un iv er sa l T ech n ica l In st it u t e 7 .6 1 190 (7 4 ) 116 (2 .4 %) (4 .9 %) 8 .4 % 9 .2 % 0 .4 x 0 .4 x 4 .4 x 4 .1 x 3 0 .0 x 3 5 .5 x
Lin coln Edu ca t ion a l Ser v ices 4 .2 4 97 12 1 08 (1 .8 %) (1 1 .2 %) 5 .3 % 6 .8 % 0 .3 x 0 .4 x 6 .6 x 5 .2 x n /m n /m
Ca r eer Edu ca t ion 2 .6 6 179 (2 8 3 ) (1 0 4 ) (1 7 .3 %) (1 9 .4 %) 0 .3 % (0 .3 %) n /m n /m n /m 3 3 .9 x n /m n /m
Na t ion a l A m er ica n Un iv er sit y 2 .9 2 75 (1 3 ) 61 1 0 .6 % 1 1 .5 % 1 2 .3 % 1 5 .3 % 0 .6 x 0 .6 x 5 .1 x 3 .7 x 1 5 .1 x 9 .7 x
Media n (2.1% ) (5.9% ) 10.4% 12.2% 0.4x 0.4x 4.2x 4.1x 11.0x 9.3x
Mea n (4.0% ) (6.2% ) 11.9% 11.2% 0.4x 0.5x 3.9x 7.4x 13.6x 12.4x

Pr ice Ca p Debt 2012-13 2011-13 2012 2013 2012 2013 2012 2013 2012 2013
Sofwa r e Pl a y er s
Cor n er st on e On Dem a n d 2 2 .4 0 1 ,1 3 1 (4 6 ) 1 ,0 8 5 4 4 .4 % 5 2 .8 % (8 .3 %) (0 .1 %) n /m 8 .4 x n /m n /m n /m n /m
Ch eck Poin t Soft w a r e 3 6 .1 3 7 ,4 0 0 (1 ,1 0 0 ) 6 ,3 0 0 7 .8 % 7 .9 % 5 9 .6 % 5 8 .5 % 6 .2 x 5 .7 x 1 0 .4 x 9 .8 x 1 5 .0 x 1 3 .7 x
SA P 6 0 .7 9 7 2 ,4 9 6 (2 8 0 ) 7 2 ,2 1 6 1 1 .6 % 1 3 .2 % 3 3 .9 % 3 5 .4 % 4 .4 x 4 .0 x 1 3 .0 x 1 1 .2 x 1 9 .7 x 1 6 .8 x
Con cu r T ech 5 1 .2 1 2 ,8 2 0 (1 9 1 ) 2 ,6 2 9 2 5 .0 % 2 5 .3 % 1 4 .7 % 2 2 .5 % 7 .4 x 5 .9 x n /m 2 6 .4 x n /m n /m
Or a cle 2 5 .2 7 1 1 9 ,6 4 3 (1 0 ,5 7 1 ) 1 0 9 ,0 7 2 5 .2 % 4 .3 % 4 7 .6 % 4 9 .5 % 3 .8 x 3 .6 x 8 .0 x 7 .3 x 1 3 .9 x 1 1 .7 x
Micr osoft 2 0 .2 6 1 7 0 ,5 0 0 (4 0 ,7 1 2 ) 1 2 9 ,7 8 8 8 .6 % 7 .8 % 4 1 .5 % 4 1 .4 % 2 .2 x 2 .0 x 5 .4 x 5 .0 x 1 0 .9 x 8 .8 x
Media n 10.1% 10.6% 37.7% 38.4% 4.4x 4.8x 9.2x 9.8x 14.5x 12.7x
Mea n 17.1% 18.6% 31.5% 34.5% 4.8x 4.9x 9.2x 11.9x 14.9x 12.7x
Cor por a t e T r a in in g
Fr a n klin Cov ey 9 .7 8 178 18 196 1 0 .0 % 8 .6 % 1 4 .7 % 1 7 .0 % 1 .5 x 1 .3 x 1 0 .0 x 7 .9 x 2 6 .7 x 2 0 .1 x

GP sSt r a t eg ies Cor p 1 5 .6 6 299 (1 0 ) 289 9 .7 % 1 4 .5 % 1 1 .0 % 1 1 .5 % 1 .0 x 0 .9 x 8 .7 x 7 .6 x 1 7 .8 x 1 6 .1 x
Lea r n in g T r ee 4 .0 0 53 (2 4 ) 29 n /a n /a 8 .2 % n /a 0 .3 x n /a 3 .2 x n /a 1 8 .5 x n /a
Media n 9.8% 11.6% 11.0% 14.2% 1.0x 1.1x 8.7x 7.7x 18.5x 18.1x
Mea n 9.8% 11.6% 11.3% 14.2% 0.9x 1.1x 7.3x 7.7x 21.0x 18.1x

Transaction
Comparables

e-Learning M&A Transactions
Since 2011
Transaction Target Acquirer Strategic vs. Target Target Target HQ Target Business Transaction Implied
Date Financial Subsector (e-Learning vs. (Country) Description Value EV /
Acquirer Traditional) m EBITDA
Offers educational materials and learning solutions for

McGraw-Hill Apollo Global
Nov-12 Financial Content Traditional US students, instructors, professionals and institutions 2,747 7.1x
Education Management
worldwide
Catalogue of research based education and clinical

Management
Oct-12 EmbanetCompass Pearson Strategic e-Learning US assessment products and publishes textbooks and online 650 NA
Systems
learning materials
Management Designs and develops online learning and higher

Oct-12 Deltak edu John Wiley & Sons Strategic e-Learning US 220 NA
Systems education programmes
Chelsea
Sovereign Capital Provides classes for A level, GCSE courses and many
Sep-12 Independent Financial Distribution Traditional UK 48 NA
Partners other courses in London
College
Management Provides SaaS solutions that enable organisations to

Aug-12 Kenexa IBM Strategic e-Learning US 1,397 NM
Systems recruit, retain and develop employees
Graphite Capital Offers Mathematics and English tutorial services in the

Aug-12 Explore Learning Financial Distribution Traditional UK 48 NA
Management UK
Operates as a platform and service provider for

Higher One Management
Aug-12 Campus Labs Strategic e-Learning US assessment in higher education primarily in the North 41 NA
Holdings Systems
America
Active Internet Spectrum Equity Management Provides web-based software and services for schools and
Jun-12 Financial e-Learning US 55 NA
Technologies Investors Systems educational organisations in the US and internationally
Provides online driver defensive training courses for

May-12 I DRIVE SAFELY Compass Partners Financial Distribution e-Learning US 73 NA
customers in the US
Provides on-demand enterprise solutions for advancing

May-12 GlobalEnglish Pearson Strategic Distribution e-Learning US 90 NA
enterprise fluency
Casterbridge Bright Horizons Operates nurseries and preschools in Greater London,

May-12 Strategic Distribution Traditional UK 114 NA
Nurseries Family Solutions East Anglia, and the South East of England
Source: Capital IQ
e-Learning M&A Transactions (Contd)
Nippon Mirai Engages in the planning, production and sale of materials

May-12 ALC Press Financial Content e-Learning Japan 65 4.7x
Capital for distance learning in Japan
SaaS education technology provider that develops,

Management
May-12 Certiport Pearson Strategic e-Learning US markets and distributes education and certification 140 NA
Systems
software testing programmes
Provides web-based document imaging, data integration

Perceptive Management
Mar-12 Nolij Corporation Strategic e-Learning US and forms processing solutions for public and private 32 NA
Software Systems
colleges and universities in the US and internationally
Archipelago Management Provides subscription-based SaaS education products to

Mar-12 PLATO Learning Strategic e-Learning US 366 12.5x
Learning Systems customers in the US, Canada and the UK
Management Develops technology-enabled corporate training and

Feb-12 Inscape Publishing John Wiley & Sons Strategic e-Learning US 85 NA
Systems assessment solutions worldwide
Management Provides on-demand talent management software

Feb-12 Taleo Oracle Strategic e-Learning US 1,921 NM
Systems solutions
Management Provides formal and on-demand learning, knowledge

Feb-12 OutStart Kenexa Strategic e-Learning US 84 13.5x
Systems sharing and community/expert collaboration solutions
Jan-12 UP Benesse Strategic Distribution Traditional Japan Engages in the education business activities in Japan 94 NA
Dec-11 Wao NA Holdings Strategic Distribution e-Learning Japan Provides education services in Japan 76 5.2x
Provides cloud-based business execution software

Management
Dec-11 SuccessFactors SAP Strategic e-Learning US solutions for organisations to bridge the gap between 3,764 NM
Systems
business strategy and results worldwide
OJSC Publishing Olma Media

Nov-11 Strategic Content Traditional Russia Specialises in issuing study materials 72 NA
House Group
Source: Capital IQ
Global Education & Provides educational courses and related services in

Nov-11 Pearson Strategic Distribution e-Learning China 286 18.2x
Technology Group China
Provides learning solutions to enable organisations to

Oct-11 Element K Skillsoft Strategic Distribution e-Learning US develop employees, support partners and educate 110 NA
customers
Provides online learning solutions for customers in the

Oct-11 learndirect LDC Financial Distribution e-Learning UK 62 NA
UK
Sep-11 Everonn Education Varkey Group Strategic Distribution e-Learning India Provides education and training services in India 48 8.3x
Connections
Sep-11 Pearson Strategic Distribution e-Learning US Data-driven education software for K-12 400 NA
Education
Provides residential care and education for children and

Sep-11 Kisimul Group Torreal Financial Distribution Traditional UK young people with autism, learning disabilities and 85 NA
challenging behaviour
Renaissance Management Virtual education solutions for K-12 students and online
Aug-11 Permira Financial e-Learning US 485 12.0x
Learning Systems learning solutions to educational institutions
Aug-11 GABA Nichii Gakkan Strategic Distribution Traditional Japan Operates English schools in Japan 132 4.3x
SunGard Higher Management Higher education software systems that manage student
Aug-11 Datatel Strategic e-Learning US 1,775 NA
Education Systems records
American
University of the
Aug-11 Caribbean and DeVry Strategic Distribution Traditional US Fully accredited Caribbean medical school 235 NA
Medical Education
Services
Publishes mathematics curricula for middle school, high

Aug-11 Carnegie Learning Apollo Group Strategic Content e-Learning US 75 NA
school and postsecondary students in the US
Source: Capital IQ
Management
Jul-11 Blackboard Providence Equity Financial e-Learning US Publishing and distributing books and journals 1,852 22.3x
Systems
Operates a network of nonsectarian private schools that

Nobel Learning Leeds Equity
May-11 Financial Distribution Traditional US include preschools, elementary schools, middle schools 148 8.4x
Communities Partners
and specialty high schools
Management Instructional improvement education software focused on

Apr-11 Schoolnet Pearson Strategic e-Learning US 230 NA
Systems K-12 districts and states
Tribal Group's
Health & Capita Business Provides advisory, service delivery and technical support
Apr-11 Strategic Distribution e-Learning UK 25 NA
Government Services across central and local governments
Businesses
Education
Management Provides educational qualifications and assessment
Mar-11 Development Pearson Strategic e-Learning UK 183 10.1x
Systems services in the UK and internationally
International
21 Centrale
Operates 6 distance training and electronic learning
Feb-11 Forma-Dis Partners / CM-CIC Financial Distribution e-Learning France 104 NA
schools
Capital Finance
Offers coaching and education services to private

James Bowers ISIS Equity
Feb-11 Financial Distribution Traditional Norway candidates for their Norwegian Upper Secondary Schools 32 NA
Education Partners
exams
Owns and operates residential and day special schools for

Feb-11 Sonans Procuritas Financial Distribution e-Learning UK children with behavioral, emotional, social, 41 NA
communication and complex learning difficulties
Pearson Sistemas
Feb-11 Pearson Strategic Content e-Learning Brazil Operates in the educational sector in Brazil 330 NM
do Brasil
Mean 448 10.6x
Median 107 9.2x
Source: Capital IQ
Fundraising

Recent e-Learning Fundraising
Most Recent 30 Fundraisings
Transaction Target Investor Investor Target HQ Target Subsector Target Business Transaction
Date Type (Country) Description Value(2)
m
The joint venture between Barnes & Noble and Microsoft

Dec-12 NOOK Media Pearson Strategic US Content that runs the US retailers Nook e-Reader division, its e- 89.5
Book store and its 674 college bookstores
Atlas Venture, Benchmark Capital,

Develops online social, collaborative, and personal
Dec-12 Grockit Integral Capital Partners, Discovery VC US Distribution 20.0
learning programmes
Communication, GSV
Insight Venture Partner, Learn Capital A leading video-based online marketplace for skill-based
Dec-12 Udemy Venture Partners, Lightbank, MHS VC US Distribution and lifelong learning 12.0
Capital Partners
Provides open source and agile training programs and

Dec-12 Skills Matter Beringea PE UK Distribution events for software professionals to learn and share skills 5.0
to write software
Tree House Philanthropic Provides various educational services in India and

Aditya Birla Trustee Company, ON
Dec-12 Education & Investment India Distribution operates the largest number of self-operated pre-schools 9.3
Mauritius
Accessories Firm in India
Online learning platform that combines the best insights

Nov-12 Memrise NA NA UK Distribution 5.1
from the art and science of memory
500 Startups, The Social+Capital

Helps high school students prepare for their university
Nov-12 Descomplica Partnership, Valar Ventures, Valor VC Brazil Distribution 2.0
entrance exams
Capital Group
Operates a network of campuses for individuals focusing

Nov-12 General Assembly VegasTechFund VC US Distribution on opportunities and education in technology, business, 9.8
and design domains
Operates an online education portal and offers video

Oct-12 Tareasplus Academic Partnerships Strategic US Distribution lessons to help students from early-teens to mid-twenties 1.8
to do their homework assignments and general studies
Charles River Ventures, Andreessen Offers online courses focusing on artificial intelligence
Oct-12 Udacity VC US Distribution 15.0
Horowitz and robotics

IBIS Capital | Global e-Learning Investment Review (1) Includes the 30 most recent fundraisings 98
(2) Transaction values are converted at historical conversion rates
Recent e-Learning Fundraising (Contd)(1)
m(2)
Oct-12 Busuu Online PROfounders Capital VC Spain Distribution Operates an online community for learning languages 4.6
Bill & Melinda Gates Foundation, Endowment Designs and develops Facebook application for higher
Oct-12 Inigral US MS 3.3
Retro Venture Partners Fund / VC education
Accel Management, Kaizen

Ace Creative Provides training and guidance to students preparing for
Oct-12 Management, Catamaran Investment, VC India Distribution 4.5
Learning various engineering and medical entrance examinations
Monterey Capital Management
Oct-12 ConnectEdu Undisclosed NA US Distribution Provides Web-based college and career access solutions 5.0
Oct-12 Best Learning Tiantu Capital VC / Growth China Distribution Operates a chain of English schools in China 15.9
Bessemer Venture Partners, SoftTech

Provides an online service for the student information
Sep-12 Clever VC, Y Combinator, FLOODGATE, SV VC US MS 3.0
system (SIS) integration of educational applications
Angel, Kapor Capital
Sep-12 ePals Undisclosed NA US MS Provides social learning networks worldwide 12.1
Operates creativeLIVE, an online platform that provides

Sep-12 creativeLIVE Greylock Partners NA US Distribution live learning workshops and courses for entrepreneurs 7.5
worldwide
Sequoia Capital, Stanford University, VC / Creates educational applications for iPhone, iPod touch,
Sep-12 Duck Duck Moose US Distribution 7.0
Lightspeed Venture Partners Institutional iPad, and Android for children
Operates owned and managed childcare centers in

Sep-12 G8 Education NA NA Australia Distribution 36.7
Australia and Singapore

Recent e-Learning Fundraising (Contd)(1)
m(2)
New Enterprise Associates, Union Offers a language learning website where students learn a
Sep-12 Duolingo VC US Distribution 15.0
Square Ventures foreign language while simultaneously translating text
Operates as an autonomous institution that focuses its

Kaizen Management, Monterey
Sep-12 Calorx Education VC India Distribution activities on K-21 education ranging from a school to a 4.5
Capital Management
university
New Enterprise Associates, OMERS

Sep-12 Desire2Learn VC Canada MS Provides enterprise eLearning solutions 80.0
Ventures
NewSchools Venture Fund,

Designs, develops, creates, and evolves a Web and iPad-
Investment Arm, MK Capital, Learn
Sep-12 eSpark VC US Distribution based mobile educational software platform for 5.7
Capital Venture Partners, 500
elementary school students.
Startups
Offers tips, advice, interactive tools, and deals to students

Aug-12 Simpletuition Horizon Technology Finance Venture Debt US Distribution 5.0
and their families to take education financing decisions
ChinaCast Provides post-secondary education and e-learning

Aug-12 Investor Group NR Hong Kong Distribution 2.2
Education services in China
Owns and operates private ESL schools in Toronto and

Aug-12 Loyalist Group Undisclosed NA Canada Distribution 5.1
Vancouver, Canada
Designs, develops, and delivers open-source software

The rSmart
Aug-12 ASAHI Net, GSV VC / Strategic US MS solutions for colleges, universities, schools, and education 10.8
Group
organizations in the United States and internationally
Owns and operates www.educreations.com, an Internet

Accel Management, NewSchools community that allows users to teach and learn. It
Aug-12 Educreations VC US Distribution 2.2
Venture Fund enables teachers to create lessons and students to solve
problems
Fingerprint Develops mobile learning and play games for kids and
Aug-12 Corus Entertainment Strategic US Distribution 5.0
Digital grown-ups

IBIS Capital
is a specialist investment
bank focused on the
Media sector
This report was prepared by IBIS Capital Ltd

with input from:
Contacts:
Charles.McIntyre@ibiscapital.co.uk
Rory.Henson@ibiscapital.co.uk
Jake.Vago@ibiscapital.co.uk

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IBIS Capital | January 2013

IBIS Capital | Global e-Learning Investment Review

IBIS Capital | Global e-Learning Investment Review 2

IBIS Capital | Global e-Learning Investment Review 3

11 29 Education Trends and the Adoption of Technology

58 61 Pearson Case Study: a Leader in Education

62 68 Valuation and M&A Activity

69 71 Buyer Landscape and Strategic Rationale

72 74 IBIS Capitals Lessons for the Future

101 About IBIS Capital

IBIS Capital | Global e-Learning Investment Review 4

Providing an Industry Overview Insights into e-Learning Innovation

Explaining Key Market Factors M&A and Valuations

Understanding Market Trends IBIS View of the Future

IBIS Capital | Global e-Learning Investment Review 5

IBIS Capital | Global e-Learning Investment Review

Healthy Ecosystem New Companies

Need for Change Government

>$1.0tn is the current total US student loan debt The Tin

Technology to Prosper Fundraising and Consolidation

Global Education Expenditure by Geography and Subsector

($bn) In 2011, global education expenditure

500.0 North America and Europe are the

Global Education Expenditure by Geography and Subsector

Global Education Expenditure Forecast by Subsectors

($bn) Global education expenditure market is

Multiple emerging business models

Massive Online The penetration of mobile devices is

Immersive Serious Gaming /

IBIS Capital | Global e-Learning Investment Review 10

IBIS Capital | Global e-Learning Investment Review

Education Expenditures as a % of GDP (2000 vs. 2008) Key Points

The US education system is correlated

5.0% 6.0% Corporate investment in the workforce

Population Growth and Internet Penetration by Region

10.0% 9.4% 9.3% The global population is expected to be

Source: Internet World Statistics, US Department of Education, United Nations

The total student loan debt stands at

US per Student Spending vs. Student Performance, 19712009 Key Points

IBIS Capital | Global e-Learning Investment Review (1)

(Immersive Learning Simulation) PLE

Authoring and Development Tools

Source: IBIS Capital, Learning Light

Is Online Education Critical to the Long-term Strategy of the Institution?

Agree Neutral Disagree 65.5% of Chief Academic Officers

Over the 9 year period (2002-2011),

However, there currently exists a gap

Source: Babson Survey Research Group

The Evolution of Education Competitive Landscape

Pressure on government education budgets and rising costs of higher

Benefits: Limitations: Other Players

Source: Company data, Research reports, Educase

Average Direct Learning & Development Expenditure per Employee

($) In 2010, US firms with less than 500

US organisations made double digit

Corporates in Spain and the UK lead

Source: ASTD, Cegos

% of Employees Using e-Learning % of Employees Using e-Learning

Market acceptance of e-Learning has

Companies are increasing their use of

33% 35% 38%

Source: Ipsos, CrossKnowledge

Mobile Education at Your Hands Tablets & Connected Devices