Tag: RLRN

Renaissance plays politics

Brenon Daly

Contact: Brenon Daly

It must be election season. That’s what struck us when we saw earlier this week that Renaissance Learning went ahead and accepted a buyout offer that valued the online education vendor at about 10% less than an unsolicited bid. To our ear, some of the material in the proxies filed in connection with the $455m leveraged buyout could very well have come from a campaigning politician. The deal closed earlier this week.

Consider the language that the company used in laying out why shareholders should follow the lead of the company’s cofounders, who controlled some 69% of the equity, and back the initial offer from buyout firm Permira: The deal would be ‘more favorable’ to the employees and the broader community than the unsolicited bid from rival company PLATO Learning. (In addition, Renaissance said PLATO’s offer would take longer and be less likely to close, in their view.)

The concern, presumably, is that there would be far more overlapping employees if the two companies were merged, resulting in more job cuts than if Renaissance were taken private and largely left to run as it had been running. Who knows, maybe if PLATO took the company over, the combined company would start with cuts in the executive ranks. If that were the case, the cofounders of Renaissance would go from majority owners to unemployed.

Don’t get us wrong. We’re all for not contributing to the already intractably high unemployment rate in the US. But as a public company, Renaissance has a fiduciary responsibility to all its shareholders, not just the ones in its hometown. It’s worth noting that Renaissance is incorporated in its home state of Wisconsin, rather than the typical location for incorporation, Delaware. (Roughly half of US companies, including PLATO, are incorporated in Delaware.) So that may go some distance toward explaining why the company made ‘jobs and community’ a part of its pitch.

A renaissance of PE interest in Renaissance

Brenon Daly

Contact: Brenon Daly

In 2010, PLATO Learning went private in a relatively straightforward process that took just two months from Thoma Bravo’s announcement of the leveraged buyout (LBO) of the online education vendor to the close of it. Now, privately held PLATO is drawing out – and making more expensive – the LBO of fellow online education provider Renaissance Learning. PLATO has been part of a bidding war for Renaissance that has been playing out since mid-August.

In the original offer, buyout firm Permira planned to acquire Renaissance, which has been public since 1997, in a deal valued at $440m. (Somewhat unusually, terms call for Permira to pay one price for Renaissance’s common shares that trade on the Nasdaq while paying a lower price to the cofounders of the company, who control 69% of the equity.) PLATO then topped Permira’s opening bid a week later.

Earlier this week, Permira raised its offer, as did PLATO. However, the board continues to support the Permira bid – even though it values Renaissance at $16m less than the offer from PLATO. The reason? The cofounders don’t want to sell to PLATO. Other shareholders, who represent the remaining 31% of Renaissance equity, will have a chance to vote on Permira’s offer on October 17

A little something for your trouble

Brenon Daly

Contact: Brenon Daly

Breaking up is hard to do. And it can be expensive, too. But as a pair of deals this week shows, the costs aren’t necessarily borne equally by the two sides in a planned transaction. In the higher-profile case, the market is buzzing that Google may be on the hook for a $2.5bn payment to Motorola Mobility if that deal unravels. If that’s the case, the payment (known as a reverse breakup fee) would be 6-7 times larger than the payment Google would stand to pocket if Motorola Mobility walks away from the transaction.

That gap is much wider than is seen in deals that feature reverse breakup fees, where a would-be buyer might face a fee that would be closer to twice the amount the seller might pay. That’s how it is, for instance, in Permira’s planned $440m buyout of education software maker Renaissance Learning. According to terms of Tuesday’s leveraged buyout (LBO), if Permira walks away from the transaction, it will have to come up with $26m, or nearly 6% of the equity value of the proposed deal. On the other side, if Renaissance Learning backs away, it will have to hand over just $13m, or about 3% of the equity value.

Reverse breakup fees have long been an accepted way for a would-be seller to receive compensation for any risks in getting a transaction closed. (The rationale is that the disruption in business due to an acquisition is much greater to the target company than the acquirer, so the greater potential risk is offset by a greater potential reward.) Of course, these fees are far more common in LBOs than when the deal is struck between two companies, like Google buying Motorola Mobility. But then again, the search giant – going back to its Dutch auction IPO and continuing to today’s practice of not giving quarterly financial guidance – has never been a company that really follows Wall Street convention.