One of the largest acquisitions in the history of ed tech was announced today, when Renaissance Learning, a K-12 assessment and learning analytics company based in Wisconsin Rapids, Wis., revealed that it has reached an agreement to be acquired for $1.1 billion by Hellman & Friedman, a San Francisco, New York, and London-based private equity firm.
The seller is Permira, a European private equity firm, that had purchased Renaissance Learning almost two and a half years ago for $455 million. Last month, Google Capital made a $40 million investment—its first funding of an education company—in Renaissance Learning, which is known in K-12 circles for its STAR assessments, and its Accelerated Reader and Accelerated Math curricula. At the time, Google Capital had valued Renaissance at $1 billion.
The size of the sale puts it in the stratosphere of education mergers and acquisitions. In 2011, Providence Equity Partners, a private equity firm, bought Blackboard Inc., a Washington-based education enterprise technology company, for $1.64 billion. In 2012, the McGraw-Hill Cos. decided to sell its education division to Apollo Global Management LLC for $2.5 billion. Nearly three years ago, Pearson paid $230 million for SchoolNet, a New York-based ed tech company focused on instructional improvement. Before that, Rupert Murdoch's News Corp. spent $360 million to buy 90 percent of Wireless Generation, which became Amplify, a New York-based ed tech company that recently released a new curriculum.
"Hellman & Friedman stand apart," said Jack Lynch, the CEO of Renaissance Learning, in a phone interview before the announcement yesterday. "They focus on companies with demonstrable growth."
"Our learning progression, the sequencing of skills students must master from kindergarten to 12th grade, is a unique, uncommon asset in K-12, propelling our growth forward. That was the catalyst for their interest in our company," Lynch said. The progression relies on data from more than 45 million assessments taken each year by students at more than one-third of U.S. schools.
This is the first foray into K-12 education for Hellman & Friedman, which counts ellucian, an enterprise software company for colleges, and The Nielsen Company, a consumer analytics company, among its portfolio of businesses.
Such a large transaction is bound to draw attention to ed tech as fertile ground for investors. "The talk [among ed-tech owners] will be that 'we should get big valuations for our company, too,'" said Chad Johnson, a managing director in Cherry Tree & Associates, a Minnetonka, Minn.-based investment banking firm. But a private equity firm like Hellman & Friedman is focused on Renaissance's strong financials. "They don't buy companies that are not profitable and growing," he said. Indeed, a Permira partner told the Milwaukee Journal Sentinel that the company's profitability had almost doubled since it acquired Renaissance Learning.
Lynch said Hellman & Friedman are investing not just in the company, but in the management team, noting that he plans to make a financial investment of his own in the business now. The acquisition will give Renaissance what it needs to continue building out its capabilities, further expand its market reach, and help teachers transform education, he said.
In a statement about the sale, Anupam Mishra, a managing director at Hellman & Friedman, said, "Renaissance's history of innovating to help teachers is long and unrivaled. Renaissance is at the forefront of personalized learning and will have a meaningful impact on education in the 21st century. We are proud to be a part of it."
The company will retain its Wisconsin headquarters, and the transaction is expected to close in the second quarter of 2014.