Why we’re betting on offshore service providers to the e-learning industry- Aravind.G.R

Arguably, India’s best Venture Capital exit came from a company in the e-learning offshoring industry. UTI exited Excelsoft Technologies with 50X returns by selling 35% stake (acquired at $600K) to D E Shaw in 2008 at a whopping $31 mn, valuing the company at close to $75 mn. The company boasted a net profit margin of 50% on a top line of $11 mn in FY 08, which essentially meant that the company was valued at 7x times its top line. DE Shaw paid such a high valuation because of the enormous profit levels on the company’s product and the blistering pace of growth (last heard, they had doubled revenues to nearly $20-22 mn in 2010).

The education practice at Viedea has worked with companies in the e-learning offshoring space over the past few years and continues to witness high growth in this sector. The fact that e-learning players in India have one of the highest representations in the Deloitte Technology Fast 500 list bears testimony to this.

The shift to e-learning

The market for technology based learning solutions is rising at a phenomenal pace globally. There is an inherent shift in the learning methods adopted by companies in employee training from on-the-job & classroom based training to e-learning. IDC estimates e-learning adoption at 48%, in in-house training. The academic market too has graduated towards using instructional design based content. IDC research estimated the size of e-learning market at $16 bn in 2007, growing at 20.4% to reach $40 bn by 2012.

The market for outsourcing

Global training companies such as Skillsoft, ElementK, Accenture, Expertus Adayana, Intrepid, etc use Indian firms or their own captive centers in India, to outsource ‘non-core’ processes. Training providers focus on their core competencies like deployment, delivery and R&D in their domain. Other processes such as (1) content creation/design/conversion/repurposing; (2) technology tools to create, convert, deliver, host & support content and (3) Consulting & implementation support are outsourced too. Outsourced service providers include Tata Interactive, FCS, eMantras, Magic Software, Edutech, Hurix, LearningMate, Harbinger (products), etc.

Viedea estimates that revenues from e-learning offshoring industry in India stands at $500-600 mn (including captives).Value Notes, an Information & Research firm has estimated that the sector is set to grow at 20-30% a year.

Our take

We expect significant outbound and inbound M&A deal activity in the learning outsourcing space over the next 24 months as the value chain gets reorganized to cater to the high growth potential.

Frontline training companies will look to backward integrate by acquiring offshore e-learning solutions providers, thereby gaining greater control over output as well as better margins.

Established Indian offshore providers will look to acquire mid-sized training firms in US and Europe, thus leveraging their content and technology expertise to offer seamless training solutions to clients. We also anticipate PE participation in funding some of the acquisition activity in this space.

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

One Response to Why we’re betting on offshore service providers to the e-learning industry- Aravind.G.R

  1. Rajesh says:

    Few thoughts;

    Think, the elearning train ( of Content and LMS Pure Play) has already left the station.

    The future need would be an integrated value added solution focussing on the staff productivity increase of an organisation. The transactional job works like learning Portal, Content creation/Repurposing,LMS support, student attendence/feedback, SCORM complaince etc would be the bi-product of this change.

    Regards
    Rajesh AR

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