A New Cycle in Education: Where Capital and Demand Are Shifting (Baird)

Summary

• The end of post-pandemic emergency funding and the ESSER winddown are separating durable non-discretionary spending from temporary discretionary budgets across K-12 education.p.3
• Federal funding in the U.S. is planned to be pushed to individual states via block grants as the Department of Education faces an ongoing winddown process.p.3
• Nearly 3/4 of U.S. governorships will be on midterm ballots come November, heightening policy and budget uncertainty for solution providers.p.3
• Districts are moving beyond basic AI experimentation toward procurement based on clear ROI, strict data protections, and vetted tool lists.p.4
• School technology procurement is shifting from standalone point solutions toward vertical platforms with true cross-product integration and systems-of-record interoperability.p.5
• Higher education demand is shifting rather than disappearing, with students prioritizing career outcomes, cost, and time efficiency over non-differentiated credentials.p.6
• Baird's Knowledge Solutions investment banking team has actively covered the sector across the full education lifecycle since 2004.p.8

Key insights

1. Non-discretionary categories like school safety, core instruction, special education, and career and technical education (CTE) demonstrate greater budget resilience than professional development or supplementary instructional materials.p.3
2. AI adoption in K-12 is shifting from broad experimentation to targeted use cases with clear ROI, such as tutoring, intervention, assessment, and teacher productivity.p.4
3. Interoperability and proof of value have become key procurement gates as districts seek to reduce the operational and governance costs of software sprawl.p.5
4. M&A logic in EdTech is prioritizing providers that create coherent workflows and connect data across existing systems over collections of loosely related point solutions.p.5
5. Higher education institutions are increasingly reallocating resources toward career outcomes, creating opportunities for specialist third-party providers in enrollment, retention, and digital delivery.p.6
6. Europe's strict regulatory environment around data privacy and governance increases market complexity but creates a strong competitive moat for compliant EdTech providers.p.7
7. High fragmentation in the European EdTech market presents strong opportunities for strategic cross-border consolidation and expansion.p.7