3P Learning acquisition of US Schools Distribution Rights for Reading Eggs

3P Learning Limited (ASX: $3PL) has entered into a binding agreement with Edmentum Inc to acquire back the US Schools Distribution Rights for Reading Eggs, with 3PL starting direct distribution from February 2024. The transaction involves a long-standing customer base of about 4,500 US Schools, including districts, with single and multi-year deals totalling about USD5m in annual billings. The fee payable to Edmentum is capped at USD13.6m, with 75% of the fee payable on 2 April 2024 and the remainder payable on 30 April 2024.

Executive Commentary on Acquisition of US Schools Distribution Rights

This strategic acquisition of the US Schools Distribution Rights for Reading Eggs marks a significant milestone for 3P Learning. It allows us to establish direct relationships with approximately 5,500 schools in the US, including those already subscribed to Mathseeds and Mathletics. This presents a critical mass of customers to upsell and cross-sell our upgraded and expanded product suite, including our new Writing Legends and Brightpath Progress programs. The transaction will be fully funded from 3PL's cash reserves, and we expect it to be earnings accretive from FY25 as we replace the current distribution fees with direct costs and expand the number of school relationships.

Summary of 3P Learning's Acquisition of US Schools Distribution Rights for Reading Eggs

3P Learning's acquisition of the US Schools Distribution Rights for Reading Eggs from Edmentum Inc is a strategically important transaction that will enable 3PL to have direct distribution rights for all its programs in the US and other key markets globally. The company expects to invest up to $2m in product, sales, marketing, customer service, and product during FY24 to maximize the opportunity in the largest EdTech market in the world. As a result, 3PL revises its FY24 Underlying EBITDA guidance to between $13m and $15m and maintains its FY24 Revenue guidance at between $112m and $115m. The transaction is expected to be earnings accretive from FY25, and the company plans to continue its on-market share buy-back program as previously announced.