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Blackboard Buyout Arrives, At Full Value (BBBB) – 24/7 Wall St.

July 1, 2011


Private-Equity Firm to Buy Blackboard for $1.64-Billion

July 1, 2011, 2:48 pm

Blackboard Inc., which makes the most popular course-management software used by colleges, announced on Friday that it had agreed to a $1.64-billion buyout by a private-equity firm, Providence Equity Partners.

The announcement came after the company said in April that it had received offers, setting off fevered speculation about the identity of its suitors. Blackboard plans to close the deal in the last quarter of this year.

The buyout is a big change in direction for one of higher education’s most prominent vendors, which had faced mounting pressure to both produce quarterly profits and shore up a declining market share for course-management software against an increasingly well-financed field of competitors.

After going public in 2004, Blackboard has grown steadily in size, buying two major competitors, Angel Learning and WebCT, and expanding into new markets, including analytics, mobile software, and emergency messaging. But the company seemed to strain at times in its attempt to meet the growth expectations of investors while focusing on the education market, which is often slow to make new investments.

Ray Henderson, president of Blackboard Learn, predicted in an interview with The Chronicle on Friday that going private will help the company bring back market share, although he argued that concerns about its hold on the market have been overstated. Now the company will not have to manage the perceptions of the few dozen institutional investors, which will give the company additional flexibility to serve its clients, he said.

The move will also help the company become more agile and to invest for long-term growth, Mr. Henderson said. As a public company, “there’s a lot of buzz that you don’t control,” Mr. Henderson said. “Just the basic stealth of being able to conduct business outside of the limelight is important.”

Blackboard took pains to tell its clients how little would change. The buyout would cause “no change in our relationship,” the company said in a statement, and Mr. Henderson wrote in a blog post that the pricing of its products would “remain within historical norms for the foreseeable future.”

Independent observers generally agreed that major, immediate changes for college customers of Blackboard were unlikely. Private-equity firms like Providence, which owns stakes in several other major education companies, are interested in “predictable streams of cash,” said Trace Urdan, an analyst at Signal Hill.

“There’s no need for them to make a really big, significant change to it,” Mr. Urdan said. “It’s not broken, it’s probably just not a growth stock anymore.”

Mr. Henderson said access to private capital will ensure that Blackboard will be able to put money into product development or big acquisitions. But in the wake of the announcement, observers said Blackboard still faces challenges in convincing its customers that it will continue to invest in all of its products. Providence could elect to pull Blackboard back from markets outside the core of its business, such as international education or research-and-development spending, Mr. Urdan said.

Blackboard could face a difficult patch while it manages the concerns of its clients during the transition period, said Vicki Tambellini, president of the Tambellini Group, a higher-education consulting firm. “For a time, this is not going to give institutions confidence,” Ms. Tambinelli said. “I think this will create doubt in terms of what it means to the institutions going forward.”

However, Mr. Henderson played down the possibility that Blackboard might scale back in some areas, although he said the company had not yet discussed those issues in detail with Providence. The key question is not where Blackboard will pare back, he said, but “where do we decide to lay down additional markers?”

“What do we decide that we’re going to really put our shoulder to?” he added.

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