Historically, education staffing firms have focused exclusively on the supply of teachers and educational support staff for either temporary or permanent positions. However, one noticeable trend over the past few years has seen these firms diversify their service offering by forming “Education Services Groups”. These groups offer additional services outside of traditional recruitment which they can sell into schools, allowing them to become a partner rather than just a supplier of personnel.
Often these groups are formed through acquisition, known as a buy and build. Education staffing firms are highly cash generative allowing their owners to access capital to acquire businesses in complimentary areas, such as training, safeguarding, attendance, attainment and compliance. In particular, education technology businesses are highly sort after, as the implementation of technology within the education sector has become a common occurrence. Recent examples of an agency diversifying their service offering through acquisitions can be seen when the Edwin Group acquired the student mentoring and mental health business, Commando Joes in September 2021 and the safeguarding platform, Llama ID in March 2022. Further instances include Empowered Learning’s (TimePlan Education Group) acquisition of the behavior management training business called Teach Teach and Supporting Education Group’s (Teaching Personnel & Protocol Education) acquisition of LMP Group, which included LMP Education, a national apprenticeship training provider for the education sector. After their formation, these groups can establish credibility and develop long term relationships with schools by forecasting their labor requirements, understanding their pain points by being fully imbedded with the organisation which goes well beyond a traditional recruitment service.
One of the biggest challenges outside of recruiting teachers is a school’s ability to actually retain them. According to the Teacher Well Being Index 2023, 78% of teaching staff suffer from stress and 38% of teachers and educational staff reported mental health issues during the last academic year. This is further exemplified by the fact that one in eight newly qualified teachers leave the profession after just one year in the industry, with almost one-third leaving within their first five years. Companies such as Still Human who can offer services which reduce teacher workload and improve wellbeing can have a meaningful impact on their clients by decreasing staff attrition rates. Other major challenges for schools include pupil attendance and overall attainment. Companies such as Teacher Education Supply (TES) offer an Ed Tech product called “Class Charts” which can assist schools by analysing data and understanding the trends in real time, by highlighting these, school can put measures in place to address issues which should positively impact the metrics and ultimately the pupil outcomes.
Improving the quality of agency supply staff through providing additional resources also has a meaningful impact on the students attainment inside the classroom. Connex Education (part of the Bluestones Group) has responded to the current candidate short market by investing heavily in job ready training, up-skilling, formal qualifications and wellbeing for their supply staff. In 2020 they launched Connex Academy, a learning & development platform providing over 130 courses and 7 formal qualifications across SEND, Teaching Assistant, Teaching & Learning, HLTA, Classroom Teaching, Tuition and TEFL. Each member of supply staff has a nominated skills development manager who ensures the career pathway is tailored to each individual, with all of their courses delivered entirely free of charge.
Beside embedding further into clients, another key driver of the prominence in education services groups is the valuations these companies command during a M&A sale process. Despite a resilient and reliable business model, traditional education staffing businesses don’t receive premium valuations in comparison to other specialist verticals. Companies seemingly try to improve their companies valuation by enhancing their services, improving revenue visibility and quality of earnings. Becoming an education services group can reduce it’s exposure with its variable income streams. The company can reduce it’s reliance on a certain income stream which reduces their exposure to a change in demand which should result in a more sustainable business profile. This in turn should drive up the value.
Greater company value can also be achieved through the integration of technology enabled services, education services groups can then start to compete for the enhanced valuations which are more common in the tech market as opposed to a traditional recruitment valuation metrics. Technology companies often demand a higher valuation due to a proprietary offering, ultimately giving a higher barrier to market entry. Technology startups require development budgets and usually external funding is needed to bring the companies from concept stage. Smaller staffing firms naturally struggle to compete with this expenditure requirement and education services groups who are well capitalised have the opportunity to develop and roll out new technologies to further advance from the traditional competition in the pursuit of greater market share.
What we also see is that technology businesses often use a subscription revenue model, as a by-product these companies have the ability of forecasting their recurring revenue likelihood. Schools will pay annual subscriptions to use software which track student attendance and attainment as well as HR platforms providing payroll and pensions to their permanent staff. If a school is subscribed, an agency has mitigated against some of the risk should a school go through a period where they need less temporary staff, the additional services within the subscription will bridge the reduced temporary staff count in comparison to an agency that only supplies staff.
Looking ahead, I expect to see more and more education staffing agencies transition into enhanced services groups, which will drive further M&A activity in adjacent sectors such as education technology.