PowerSchool, Major Ed-Tech Provider, Valued at $3.5 Billion Following Initial Public Offering
PowerSchool, a major provider of student information systems and an array of other K-12 tools, raised $711 million in its initial public offering this week, marking what the company says is the largest IPO in the K-12 software space in North America.
The company debuted on the New York Stock Exchange under the ticker symbol “PWSC,” capping a week where several other major ed-tech companies also hit the public markets.
That includes language learning app Duolingo, which also made its market debut Wednesday on the Nasdaq and is now trading under the ticker symbol “DUOL.” Duolingo raised $521 million in its IPO, giving the company a $3.7 billion valuation.
For it’s part, PowerSchool sold 39.5 million shares for $18 each, the low end of its price range expectations. The company had previously said it expected a pricing in the range of $18 to $20 a share. The IPO gives PowerSchool a valuation of roughly $3.5 billion.
“This IPO is a key part of our strategy to continue building our platform,” Chief Executive Officer Hardeep Gulati said in an interview.
PowerSchool says its products, which include student information systems and products focused on assessment and analytics, special education, talent management, and human resources, serve about 45 million students in 90 countries.
Relatively few companies in the education sector have been traded on public markets, but that appears to be changing.
The growth of publicly traded education companies has been pushed along partly by the rise of special purpose acquisition companies, or SPACs, shell entities that are formed to acquire companies raise money for initial public offerings. Gulati said PowerSchool was approached by multiple SPACs about going public, but the company decided on an IPO because “the PowerSchool brand is one our strengths, and we always wanted to do this as our business.”
Publicly traded companies in education, such as online education provider Stride, Inc., formerly K12 Inc., and Pearson, have drawn criticism in the past from advocates who have questioned whether the pressure they face to satisfy shareholders is inherently in conflict with the need to deliver resources to schools. Whether the new class of public companies is the target of similar ire remains to be seen.
Founded in 1997, PowerSchool has seen its ownership change hands numerous times in just a few decades. It was sold to Apple in 2001. The company was then sold again in 2006 — this time to the global education corporation Pearson. And in 2015, Pearson sold PowerSchool to Vista Equity Partners for $350 million cash. Another private equity firm, Onex Corp., purchased a stake in PowerSchool from Vista Equity in 2018.
Collectively, the two private equity firms will control about 78 percent of shareholder voting power following the IPO, according to a regulatory filing.
In its IPO prospectus, PowerSchool disclosed revenue of $118 million and a profit of $483,000 for three months ended March 31. In 2020, PowerSchool lost $46.7 million while generating $434.9 million in revenue, and the year before that recorded a loss of $90.7 million with $365 million in sales.
More Mergers and Expansion on Horizon
The company, in its IPO filings, warned investors of “a history of cumulative losses” and that “we do not expect to be profitable for the foreseeable future.”
PowerSchool intends to use money from the IPO to pay off a bridge loan related to its March acquisition of Hobsons, a provider of college and career readiness solutions.
Since 2015, the company has made 12 acquisitions to expand its portfolio — and Gulati says going public will provide the needed financial boost for continued investments in the form of acquisitions and research and development to keep growing.
“This IPO is giving us the currency and the growth path to continue,” he said.
According to its IPO prospectus, PowerSchool is also planning to expand its customer base in North America with “significant and targeted” investments in direct sales and marketing. And the company is also hoping to broaden its reach overseas, listing international expansion as one of its key objectives moving forward by making “product, personal, partnership and acquisition-related investments to expand geographically.”
PowerSchool’s listing on the public markets comes as school districts have made large investments in an array of distance learning tools, including cloud-based software solutions, over the last 18 months of the pandemic.
The company says it has seen spikes in customer acquisitions and renewals, and in the number of its users and engagement since the beginning of the COVID-19 outbreak. However, Gulati said while the pandemic has changed how educators think about ed tech, the tailwinds for growth and plans for an IPO predate the pandemic.
“The IPO,” he said, “was a natural progression for business scale.”
Image by Getty
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