Edtech specialist Keypath Education to be acquired by Sterling Partners

Fresh off a strong quarter of revenue growth, leading education technology company Keypath Education (ASX: KED) is to be acquired by an affiliate of the investment management platform Sterling Partners.

Under a definitive merger agreement, Sterling Partners will acquire all the outstanding shares of Keypath common stock it does not currently own for $0.87 cash per share, valuing the takeover target at approximately $186.8 million.

Sterling’s offer represents an 88.3% premium to Keypath CDIs’ six month volume-weighted average price of $0.46 as at 23 May.

It is intended that Keypath will become a wholly-owned subsidiary of Sterling Partners and will both delist from the ASX and deregister from the US Securities and Exchange Commission once the transaction is complete.

Special committee in favour

While it is subject to a number of conditions including shareholder approval, the transaction looks set to go through, with a Keypath special committee unanimously recommending the deal.

The special committee has determined that the offer is attractive for Keypath’s shareholders, particularly as it provides liquidity to the unaffiliated stockholders in an otherwise illiquid stock.

The committee also highlighted the 100%-cash consideration, which offers stockholders the opportunity to realise the full value of their investment with certainty.

Keypath stockholders have been told they do not need to take any action at this point in time, with a special meeting to discuss the merger expected to be held in or around September 2024.

Liquidity issues

Chair of the special committee Diana Eilert said the lack of liquidity was a significant impediment for existing Keypath investors as well as potential investors.

“The special committee has carefully considered the advantages and disadvantages of the proposed transaction and believes the offer price is attractive and provides the unaffiliated stockholders with provision of liquidity and certain value today for their investment in our business,” Ms Eilert said.

“While Keypath has achieved considerable success in the US sector and Asia Pacific (APAC) region and while acknowledging there remains the potential for future growth, this has to be balanced with the industry, business and market risks that Keypath stockholders face remaining as a publicly listed company, specifically with the investors’ liquidity challenges.”

Strong quarterly performance

The merger was announced on the same day that Keypath revealed strong revenue growth in Q3 and year-to-date (YTD) during FY24.

The company’s Q3 FY24 revenue of around $54m was 8.6% higher than for the previous corresponding period (pcp) and 10.4% higher on a constant currency basis.

Its YTD FY24 revenue of $155.6m was an increase of 12.1% on the pcp and 13.5% higher on a constant currency basis.

“We are pleased with our continued progress in FY24, with strong revenue and adjusted EBITDA growth in Q3 FY24 resulting in upgraded FY24 guidance,” said Keypath founder and chief executive officer Steve Fireng.

“These Q3 FY24 results, including the increase in enrolments, demonstrate our strategic focus on Healthcare in the US and the APAC region, providing us with confidence in driving revenue growth and continued profitability improvements in the coming periods, having reached adjusted EBITDA profitability in FY24.”