How does a major private equity firm plan to make good on its $2.5 billion investment in an education publishing company? Ride the wave of growth in education technology.
McGraw-Hill is selling its education business to Apollo Global Management, a global private-equity firm with $105 billion of assets under management. Apollo will pay $2.5 billion for the company and the transaction is expected to close in early 2013.
Apollo plans on growing its investment by “leveraging the company’s leading portfolio of trusted brands and innovative digital learning solutions to drive growth through the ongoing convergence of education and technology on a global basis,” Larry Berg, a senior partner at Apollo, told Bloomberg Businessweek. Translation: Ride the current wave of growth in the education technology sector.
Education technology has become an increasingly popular investment over the last 5 years. This holds true in the K-12 sector and in higher ed, as well as for tech start-ups and established education companies alike. Education technology is viewed in the investment world as a growth business because of the rising costs of education, the increasing demand among students for digital content and new opportunities to disrupt traditional educational methods with technologies like tablet computers and video conferencing. According to the Financial Post, investment in U.S.-based education technology companies hit $930-million in 2011.
Earlier, McGraw-Hill was considering a spin-off, which would have likely left shareholders with stock in both McGraw-Hill Financial (the new name for the remainder of the firm) and the education business, the New York Post reported.
“After carefully considering all of the options for creating shareholder value, the McGraw-Hill Board of Directors concluded that this agreement generates the best value and certainty for our shareholders and will most favorably position the world-class assets of McGraw-Hill Education for long-term success,” Harold McGraw III, chairman, president and CEO of The McGraw-Hill Companies told Bloomberg.
Lloyd G. “Buzz” Waterhouse, president and CEO of McGraw-Hill Education, also speaking to Bloomberg, described Apollo as “a leading global alternative investment manager and its affiliated funds have made significant investments in learning companies for more than a decade.” An Apollo Global Management affiliate, Apollo Investment Management, L.P., is (as of September 30, 2012) invested in four learning companies: ATI Acquisition Company, Cengage Learning, Delta Educational Systems, Inc. and Laureate Education, Inc.
Going forward, McGraw Hill intends to rebrand the company as McGraw Hill Financial. This remaining company will have customers in over 150 countries and will focus on content and analytics in the global capital and commodities markets. McGraw Hill Financial forecasts 2012 revenue at just under $4.5 billion, with 40% from international markets.