by Brenon Daly
Dragged down by the uneven performance of its two main products, learning management software maker Instructure is headed toward a period of corporate rehabilitation behind closed doors. The company says it will be going private in a proposed $2bn LBO by Thoma Bravo, wrapping up a three-year stint on the NYSE. Under ownership of the buyout firm’s sharp-penciled operators, we expect Instructure’s portfolio to be thinned in short order.
Although the stock nearly tripled from its IPO price, the ed-tech vendor has been increasingly dogged by questions about its product lineup. For the first few years after its founding in 2008, Instructure had success in selling software to schools to manage their education programs. However, its effort to replicate the uptake that its Canvas offering had in schools with a product targeting learning in the workplace has foundered since its early-2015 launch.
The corporate learning management offering, Bridge, has been a bit of an albatross. Instructure acknowledged that in its recent quarterly report, adding that it had begun separating the underperforming Bridge division from the still-healthy Canvas unit. (Instructure doesn’t break out the respective financials of the two product lines.)
Based on early indications, that separation will likely be accelerated once the sale to Thoma Bravo closes, which is expected in Q1 2020. Consider this: In the release announcing the acquisition of the whole company, Thoma Bravo only references – and indeed, praises – Instructure’s Canvas offering. The Bridge product, which almost certainly burns cash, is conspicuously absent.
Since Instructure had publicly disclosed last month that it was reviewing ‘strategic alternatives’ for the company, the sale isn’t surprising. (Certainly, Wall Street had been betting that Instructure would get a deal done. Investors, including several activist hedge funds, had pushed Instructure shares to an all-time high in anticipation of a transaction. Turns out they got a bit ahead of themselves, as Thoma’s bid represents a slight ‘take under’ relative to the stock’s previous closing price.)
Still, this is not some bargain buyout. At roughly $2bn, Thoma Bravo is paying about 8x TTM sales of $245m at Instructure. According to 451 Research‘s M&A KnowledgeBase, that’s the highest multiple for any tech vendor erased from US stock exchanges in 10 months.