Contact: Thejeswi Venkatesh
Last fall, PLATO Learning failed in its bid to acquire Renaissance Learning even though it was ready to pay more than its competing bidder. (The reason: Renaissance’s majority shareholders felt employee interests would be better protected by selling to Permira Funds.) On Monday, the Thoma Bravo-backed online education company announced its biggest purchase since then, the acquisition of Archipelago Learning for $292m in cash. PLATO is unlikely to face similar problems in buying Archipelago, given that it has already received the support of fellow buyout firm Providence Equity Partners, which owns 46% of the target.
The transaction values Archipelago at 4.1 times sales, a handsome valuation compared with the 3.3x multiple that Renaissance received in its buyout. More interestingly, that’s almost twice the 2.1x multiple that PLATO itself garnered in its 2010 buyout by Thoma Bravo. In our view, however, Archipelago’s growth justifies the rich valuation. The company has grown from $18m in 2007 to $73m in 2011, an impressive compound annual growth rate (CAGR) of 42%, compared with the paltry 6% CAGR that Renaissance put up in the three years prior to its acquisition. Barclays Capital acted as financial adviser to Archipelago.