Prepare to watch more of your tax dollars spiral down the drain of standardized testing.
A year after being gobbled up by private equity firm Veritas Capital, ed tech company Houghton Mifflin Harcourt (HMH) is acquiring K-12 assessment giant Northwest Evaluation Association (NWEA).
Let me put that in perspective – a scandal-ridden investment firm that made billions in the wars in Iraq and Afghanistan bought one of standardized testing's big four and then added the Measures of Academic Progress (MAP) test to its arsenal.
This almost certainly means the cost of state testing is going to increase since the providers of the tests are shrinking.
"It used to be if you put out a [Request for Proposal] RFP for state assessment, you get five, six, 10 bidders," said Scott Marion, executive director of the Center for Assessment. "Now you're lucky to get three. When you're doing that, there's maybe not as much expertise and certainly the cost will go up" (emphasis mine).
Under the proposed deal announced in January, the testing company's assessments and the ed tech company's test prep materials will become intimately entwined.
NWEA, best known for its MAP assessment, will operate as a division of HMH. And NWEA's tests will be aligned with HMH's curriculum.
You can just imagine how this will affect the marketplace.
NWEA serves about 10,000 school districts and HMH estimates it works with more than 50 million students and 4 million educators in 150 countries, according to a press release about the proposed acquisition.
So we can expect districts and even entire states which rely heavily on the MAP test to be encouraged to buy as much HMH curriculum as possible. That way they can teach directly what is on their standardized tests.
That is assuming, of course, the acquisition agreement is approved after a 90-day regulatory review period.
To be honest, I would be surprised if there are any objections.
Such cozy relationships already exist with other education companies. For example, Curriculum Associates provides the aforementioned curriculum for its own i-Ready assessment.
It's ironic that an industry built on standardization – one size fits all – continues to take steps to create books, software and courses aligned with specific tests. It's almost like individuating information to specific student's needs is beneficial or something. Weird!
After all, if these sorts of assessments can be gamed by increased access to materials created by the same corporate entities that create and grade the tests, are we really assessing knowledge? Aren't we just giving students a score based on how many books and software packages their districts bought from the parent company? Is that really education?
I remember a time when curriculum was determined by classroom teachers – you know, experts in their fields, not experts in the corporate entity's test du jour.
But I guess no one was getting rich that way…
NWEA used to be focused more on formative assessments – tests that you took several times a year before and sometimes even after the big summative state assessment to determine if you were progressing toward passing the high stakes goal. However, in 2021, the company acquired assessment-related technology from Educational Testing Service (ETS) and took over several state contracts from Questar Assessments. This includes contracts for New York, Georgia, Mississippi, and Missouri.
This made NWEA attractive to HMH which had, itself, consolidated into mostly educational technologies and sold off most of its interests in book publishing and assessments. In fact, various versions of the company from Harcourt to Houghton Mifflin Harcourt used to be considered one of the big 4 standardized testing companies until only a decade ago. With revenues of $1.37 billion in fiscal year 2014, for example, the company held a 44% market share including Common Core instructional resources.
However, in 2018 it divested its Riverside clinical and standardized testing (Riverside) portfolio to Alpine Investors, a private equity firm based in San Francisco, for a purchase price of $140 million, and then sold its publishing assets in 2021 to HarperCollins.
Then in February of 2022, New York-based private-equity firm Veritas Capital acquired HMH at a price of $21 per share, or about $2.8 Billion. And under Veritas, HMH acquired NWEA and the two companies will work together to do many of the things that HMH used to do by itself – like a golden dragon perched atop the standardized testing treasure trove.
All for the benefit of Veritas Capital.
Make no mistake, the investment firm wouldn't have become involved if it couldn't make a profit off the situation. That's what it does – through scandal after scandal.
Founded in 1992 by the late investment banker Robert McKeon (who died by suicide after mounting improprieties came to light), Veritas Capital began its life buying up government contractors and forming close ties with former senior government officials. Of the company's many defense-related investments, the most infamous was its 2005 purchase of DynCorp International, a shady company involved in the US's Iraq and Afghanistan wars.
Under Veritas ownership, DynCorp benefited from lax oversight, frequently billed the government for work that was never requested, and was embroiled in a sex-trafficking scheme, according to reports.
Veritas also made headlines when a company it bought in 2008, Global Tel-Link, a telecommunications company that provides telephone services for prison systems, racked up exorbitant fees on calls to inmates.
In 2006, the firm acquired MZM Inc., an intelligence contractor, which was investigated for providing bribes to Rep. Duke Cunningham, R-Calif., in exchange for help obtaining Pentagon contracts.
Throughout its history, Veritas has fostered close ties to government officials. Campaign finance records show executives at the investment firm have given over $100,000 to various politicians, mostly Republicans. In 2014, Veritas paid Bill Clinton $250,000 for a speech.
The New York Times reported in 2001 that numerous retired generals were on Veritas' payroll and the company used such ties to the Pentagon and frequent appearances in the media to boost Veritas-owned military contractors, including DynCorp.
And now the little investment firm that could has its sights on the standardized testing game.
Why?
Because there's gold in them thar tests!
Taxpayer money, that is.
Current Veritas' CEO and Managing Partner Ramzi Musallam has taken the firm from $2 billion in investments in 2012 to $36 billion in 2021 doing things just like this.
Musallam focuses on technology companies like HMH that operate in sectors dominated by the US federal government such as standardized testing. After all, the only reason public schools throughout the country have to give these assessments is federal law. It's a captive market paid for by tax dollars.
We could just let teachers teach and then assess their students in whatever ways seem most accurate and fair. Or we could continue to rely on corporations to do it for us without any real proof that their products are better or even as good as what your local neighborhood educator could provide.
Veritas is banking on the latter.
America spends $6.8 trillion a year on defense, health care and education – markets dominated by the government.
"These are government-influenced markets, no doubt about it, and being close to how the government thinks about those markets enables us to understand how we can best invest," Musallam said.
So this merger of two of the most influential education companies in the US is great news for investors – and terrible news for taxpayers who will be paying the bill.
For students and teachers – it's more of the same.
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