Private equity deal values in the global education services sector are set to close the second quarter with nearly 47% year over year growth.

Investment in the sector amounted to $2.09 billion across 31 deals in the quarter to June 20, already surpassing the $1.42 billion recorded in the full second quarter of 2022, according to S&P Global Market Intelligence data.

Although deal volume has seen six quarters of consecutive decline, transaction value in the second quarter grew in large part because of BPEA EQT and Nord Anglia Education Inc.'s $1.25 billion agreement to acquire IMG Academy Parent LLC, which offers on-campus and online sports education programs. It was the first private equity-backed deal announced in the education services sector to cross the $1 billion mark since February 2022.

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In the year to June 20, the sector received about $2.36 billion across 79 deals. By comparison, the total was about $8.32 billion across 290 deals in full year 2022.

From Jan. 1 to June 20, North America dominated global private equity investments in the sector, at $1.85 billion. Investment in Asia-Pacific followed with $290 million and Europe with $210 million.

Top-dollar transactions

Apart from IMG Academy's proposed acquisition, only two deals announced thus far in 2023 were valued at more than $100 million.

A $500 million round of funding for Cengage Group marks the year's second-biggest transaction as of June 20. Apollo Global Management Inc. agreed to invest in the online education platform in the form of convertible preferred stock and expects to close the transaction by June 30.

Vietnam-based EQuest Education Group raised $120 million in a funding round, which included participation from KKR & Co. Inc.'s KKR Global Impact Fund SCSP.

AI to shake up sector

The sector is experiencing the impact of transformative generative AI tools like OpenAI LLC's ChatGPT and Google LLC's Bard. AI is rapidly presenting a series of significant challenges to educational services, such as ensuring academic integrity and integrating AI into the business model.

"[G]enerative AI and large language models are going to affect society and business, both positively and negatively, at a faster pace than people are used to," Chegg Inc. co-Chairman, President and CEO Daniel Rosensweig said during the company's first-quarter earnings call May 1.

Since March, student interest in ChatGPT spiked and it is impacting the company's new customer growth rate, he said. But the company has focused on the incorporation of AI, for example, with a product called CheggMate, which "will harness the power of ChatGPT, paired with our proprietary data and subject matter experts to make learning more personalized, adaptive, accurate, fast and effective."

Cengage also sees more opportunity than risk with AI. "To put it plainly, you can get answers to homework questions through generative AI but you cannot obtain a degree or a certificate solely with generative AI," Cengage CEO Michael Hansen said on the company's earnings call June 8.