As anyone involved in Educational Technology is aware, Blackboard has entered into agreement with Providence Equity Partners, a private equity firm, thus ending months of speculation. In this post, I will summarize what we know, what we think we know, and what is the public position of the players involved. In subsequent post(s) I will add my thoughts and commentary.
What we know, with a fair amount of accuracy
- Blackboard started the acquisition process in March 2011, long before they received “unsolicited” interest in April 2011. As stated in Blackboard’s press release on July 1, “The agreement between Blackboard and Providence concludes a process that began in March 2011, when Blackboard’s Board of Directors formed a Transaction Committee consisting of independent Directors to conduct a comprehensive review of strategic alternatives that included discussions with potential strategic and financial buyers.” This differs from the message from their April 19 press release that “Blackboard (NASDAQ: BBBB) today announced that it has retained Barclays Capital as its financial advisor in response to receiving unsolicited, non-binding proposals to acquire the company.” [emphasis mine].
- Once Blackboard retained Barclay’s in April, there was an attempted auction process intended to flush out all interested acquirers.
- No “strategic” player appears to have shown significant interest, as content providers (Pearson, McGraw Hill, Cengage, News Corp), technology providers (Google, Microsoft), and ERP providers (Oracle / Peoplesoft, Datatel, SunGard) did not emerge. “‘It’s pretty clear that a strategic bidder willing to pay north of $50 [per] share did not materialize,’ said Tom Roderick, who follows Blackboard for Stifel Nicolaus. ‘I would merely characterize it as fair but, in the absence of another bidder (a process which seems to have exhausted itself), fair is likely to be the best outcome,’ he added, echoing the other analysts who don’t expect a higher bid to emerge.”
- The final contenders, Providence Equity and Hellman & Friedman, are private equity players that are partially involved in higher ed ERP companies (Hellman owns Datatel, and Providence is a part owner of SunGard) – although we have no public information showing that there is any connection between Blackboard deal and ERP companies. Hellman at some point either dropped out or never gave an offer, and Providence was the last firm standing.
- Providence was one of seven firms that purchased SunGard Data Systems in 2005. SunGard is of course the parent company of SunGard Higher Education, an ERP provider.
- Providence has offered $45 / share cash plus assumption of $130 M debt, equaling a $1.64 B purchase price. This offer is based on Providence providing just over 50% as equity, with the rest based on debt provided by Bank of America, Merrill Lynch, Deutsche Bank, and Morgan Stanley.
- Blackboard’s board of directors unanimously accepted this offer on the last day that Providence had exclusivity.
- Providence could walk away from the deal, but they would owe Blackboard $103 M, per Bhavna Kaul at DealReporter. This is quite typical of today’s private equity acquisitions, ironically based on Providence’s previous purchase of SunGard.
- The deal is subject to Blackboard shareholder approval (where the primary issue will be whether the offer price of $45 / share is a good deal, when most analysts pegged Blackboard as being able to get more than $50 / share), and regulatory approval (where there might be some minor issues based on Providence’s combined holdings of Blackboard and BBB).
- The deal is expected to close around the beginning of Q4 2011 (October).
- If the deal goes through, there will be significantly less transparency in Blackboard’s operations, sales, and finances – this is simply due to the company going private.
What we think we know, based on educated guesses or independent sources
- A private equity deal means that they see increased cash flow from continued operations. From an Inside Higher Ed article, “Blackboard’s transition from publicly traded company (its status since 2004) to private equity holding could indeed mean a greater emphasis on earnings, says Trace Urdan, a senior analyst at the investment firm Signal Hill. The new owners will not have to worry about feverishly acquiring other companies in order to make the company’s stock price go up, Urdan says. More likely, Providence will treat its new investment like a cash cow, focusing on the Blackboard products that reliably make money and possibly unloading the ones that do not.”
- Blackboard has been the dominant LMS player in higher ed; however, by all objective surveys, Bb is losing 5 – 10% of the US higher ed market each year. We’ll leave the for-profit sector out of the equation for now, as these surveys do not capture that data. Given ~3,500 public and private not-for-profit schools total, that means that more than 200 schools are moving away from Blackboard each year. Below are some of the publicly available surveys.
- Barron’s article – Quotes Tambellini Group survey showing Bb dropping from 83% to 57% of market in 2 years, more than 10% per year.
- ITC Survey – Annual council survey showing Bb dropping 6% over past year in distance ed at community colleges.
- Michael Feldstein based on Campus Computing data – Good analysis showing Bb dropping from peak in 2007.
- Article from Campus Computing – Showing Bb dropping 7% market share over past year.
- What about for-profit? That market is different, as Inside Higher Ed explains – Pearson has strongest position in this sector, with Blackboard and homegrown systems close behind.
- Blackboard’s has finished a spate of acquisitions in 2009 and 2010, purchasing Angel, TerriblyClever, iStrategy, Elluminate, Wimba, Safe-T-Net, and Presidium. They do not plan on any significant acquisitions in 2011 based on earnings conference calls.
What Blackboard and Providence are saying publicly
- Providence was attracted to Blackboard’s portfolio of products based on the acquisitions, and they have been impressed with Blackboard’s management team.
- “We are very familiar with Blackboard through our extensive education investments over the years and have tremendous respect for what the Blackboard team has accomplished,” said Peter Wilde, a Managing Director at Providence. “Given its exceptional brand, technologies, client base and the depth of its team, we believe Blackboard will continue to drive and benefit from the increasing penetration of digital technologies and content in schools around the world. We are excited to put our resources and hands-on experience in the education and communications sectors toward supporting Blackboard’s growth over the long-term.”
- Blackboard is going out of their way to state that there will be no major changed to the company in the short term. Same management, same pricing, same products, same markets. “And I’ll reassure you that we expect our pricing practices to remain within historical norms for the foreseeable future.”, from Ray Henderson’s blog post. From Michael Chasen’s client letter, “I and our management team will remain in place and we do not anticipate any changes to our day-to-day operations and practices”
- The position put for by Blackboard is that they will have better capability to invest in the future with private ownership, now that they do not have to satisfy a handful of large institutional investors.