How IBIS Capital made an edtech unicorn in the middle of a global pandemic

New York empty street

In March, London asset manager IBIS Capital announced that the merger of its Nasdaq-listed acquisition company, EdtechX Holdings, and a growing Chinese education technology group, Meten, had finally completed.

The merged group, Meten EdtechX, quickly achieved ‘unicorn’ status – with market capitalisation reaching USD1.4 billion on announcement – while the rest of the US equities market was in free-fall.

But success was by no means guaranteed. IBIS says the commercial challenges of launching a first-of-its-kind edtech merger at the height of a global pandemic, threatened to overturn the deal.

“At that stage people really didn’t know how it would play out – as investors, it was humbling,” says Charles McIntyre, CEO and co-founder of IBIS Capital, and chairman and CIO of EdtechX. “We were pretty nervous that it could all fall apart.” 

Tense times led up to the merger, from the “race” to get SEC approval for the deal while staff were working remotely, to a last-dash roadshow visiting potential investors across New York, Toronto, Paris, and London for the separate placement of USD36 million with private investors such as Italian asset manager Azimut and Chinese state-owned Xiamen ITG.

“We were the last roadshow in town and coming through London and New York as the whole epidemic was unfolding, it was like we were being chased by its shadow.

“Everyone had flown to New York, only to now be doing Skype calls with investors that were two blocks down the street. By the next week, everything was locked down,” McIntyre recalls.

Then there was the “maelstrom” of convincing investors to part with their money during a crisis. McIntyre says that while there was lots of enthusiasm toward the education technology sector, against that, many investors were moving towards cash to protect themselves from volatility. “So many of them couldn’t take the step forward, as lots of cash withdrawals were coming from their funds,” says McIntyre. 

The first-of-its-kind special purpose acquisition company debuted on the Nasdaq as EdtechX Holdings back in October 2018, which IBIS created in order to find and acquire an edtech company, and bring it to the public markets. 

IBIS says the public market has had little access to the sector so far, because not many of its companies are listed.

McIntyre says: “The ability to buy exposure to tech based in healthcare and entertainment is much greater – the edtech sector is relatively young, and so not very many companies have scaled enough to be on the public market. However, in China, tech-based education is much more of a consumer affair, which has driven the businesses to scale much more quickly.”

Edtech has so far been preserve of private equity and venture capital, with a number of big deals last year, including language learning app DuoLingo and coding group Trilogy Education Services, spurring interest in the sector.

“We’ve often heard, ‘The reason we invested with you is that we wanted to build a portfolio in the sector’, and through us they can get access via an efficient vehicle for institutions,” says McIntyre. The SPAC was 2x oversubscribed at its launch.

McIntyre says that he had the advantage of being “very early in the sector”, having always taken a natural interest in remote learning because of his upbringing in Tanzania, Rwanda, and Burundi. His mother was home-tutoring and had English-language books delivered once a month from the UK, that discussed distant topics such as snowdrops. 

For around nine years, the company has been running specialist edtech conferences across Singapore, Beijing, and Europe, which gave IBIS a good eye for rising stars in the sector.

Meten was first approached by IBIS back in April 2019, when the company was looking at an IPO. The Shenzhen-based company was founded in 2006 and runs adult English language learning in China offline and online with a digital platform, Likeshuo, and was already bringing in revenues of over USD200 million.

“There was a combination of magic ingredients that made them attractive to us,” says McIntyre, and his proposition interested Meten as “what we had to offer in the form of EdtechX was a business already funded by our investors, and therefore it was an IPO ready to go.”

Why China? “The Chinese market has been particularly interesting in edtech, because consumer appetite has been driven by a growing middle class – and China invests more in edtech than any other country on earth,” says McIntyre.

By 2030, research by Morgan Stanley suggests that online tutoring could be used by over 30 per cent of Chinese in education, representing a market worth USD150 billion. 

Another advantage of China is the scalability, says McIntyre. Since edtech is linked to curriculum, it is far harder to create scale in places such as Europe, which has lots of small groupings of curriculums, rather than in big markets where there is a ubiquity of content.

IBIS’ stake in Meten now sits at under 5 per cent of company, which the investment boutique says is “useful” as a potential source of liquidity, as it is considering launching another edtech SPAC by the end of the year.

Where they may invest this time is yet to be confirmed, but McIntyre says he would consider investing in emerging markets again, where consumer edtech has flourished. However, McIntyre adds that the corporate lifelong learning space in EMEA also holds promise, as many more western European workplaces are investing in tech to enhance capabilities of its employees.