Instructure, the publicly traded company best known for its Canvas learning management software that is a market leader among colleges, made two big moves Tuesday in its drive to sell to a private equity firm.
On the one hand, CEO and board member Dan Goldsmith announced that he would resign both posts, with its last day on March 6. A group of senior executives will run the company until a new successor is found through an executive search firm.
Also, the board of directors of Instructure Approved private equity firm Thoma Bravo’s offer to buy the company at $49 a share in a “tender offer”, meaning Thoma Bravo can buy shares directly from shareholders and, perhaps more importantly, avoiding a shareholder vote to approve the previous $47.60 per share deal (about $2 billion in total). A shareholder vote scheduled for February 25 to approve a deal with Thoma Bravo is cancelled.
“The Board of Directors unanimously supports this structure as the clearest path to maximizing value for all Instructure shareholders,” Instructure Executive Chairman Josh Coates said in a statement. “We encourage all shareholders to tender their shares in support of the transaction.”
The vote has been in question for months now, two influential investor advisory firms have opposed the deal and various shareholders including Praesidium Investment Management, Rivulet Capital, Lateef Investment Management and Oberndorf Enterprises publicly oppose the deal. ‘OK.
Companies and shareholders have raised questions about how Instructure conducted the search for a new owner. Complaints have included Goldsmith’s role in the search, with allegations that he pushed for a deal that rewards leadership at the expense of shareholders.
Critics have also complained that a director who helped find buyers, Kevin Thompson, had previously worked with Thoma Bravo on another takeover deal, which could impact his judgment. And critics have argued that Goldsmith may have chosen a deal that protects the work of her sister, Jennifer, who is Instructure’s chief strategy officer.
Instructure continued a sell-off, in part due to expected slower growth for its flagship Canvas LMS for colleges and due to disappointing results from Bridge, an enterprise LMS that Instructure built in-house to expand its reach. to large companies.
This $49 per share offer is the third revision of the deal by Thoma Bravo. Instructure’s board of directors rejected an offer last week for $48.50 per share.
Sale more likely
Goldsmith joined Instructure in 2018. Under his leadership, Instructure bought appraisal software provider MasteryConnect and digital wallet maker Portfolium. Additionally, the company surpassed $250 million in annual revenue in 2019 and achieved positive free cash flow for the first time in its history, according to a company statement.
Last week, a filing with the United States Securities and Exchange Commission revealed that Goldsmith had dropped out. about half fairness in the compensation he would receive if a Thoma Bravo deal was struck. He originally stood receive $473,000 in cash plus $22 million in equity.
Two investment banks released reports on Tuesday suggesting the moves increase Instructure’s chances of being sold. “We are not surprised by the revised offer to $49/share, as it ultimately increases the likelihood that the deal will close at a similar price,” according to a report from investment bank Raymond James.
“Clearly, the momentum is fluid with the resignation of CEO Dan Goldsmith, which, at the margin, may also increase the likelihood of voting for the deal,” according to the report. “At the same time, our conversations with fundamental investors suggest that $49 was not a sufficient stock price with the belief that Canvas could “exceed 40% growth rate and profit margin combined over the coming years.
Investment bank SunTrust Robinson Humphrey also said Instructure’s latest actions made the deal more likely. But he also warned of the negative impacts of so much change at Instructure in just a few days. “What appears to us to be an abrupt resignation could create heightened uncertainty for one of the company’s primary constituents, its customers,” according to a bank report.
Phil Hill, Education Technology Analyst said in a blog post that the “aggressive moves” to complete the deal suggest that Thoma Bravo has more in mind for his role in the world of edtech. The private equity firm also owns Frontline Education, a provider of school administration software. “Bravo is sitting on a pile of cash (over $12 billion in its last round), and there are likely bigger projects that hinge on this Instructure acquisition,” Hill said. “We’ll have to see.”