Instructure, best known for its Canvas learning management system, announced on Wednesday that it was set to be acquired by private equity firm Thoma Bravo for around $2 billion, unless a best offer presents itself within the next 35 days.
The canvas has largest market share in the United States when it comes to LMS software that serves as a virtual classroom, online gradebook, and other functions used in almost every college course these days. The company says its tools are used by more than 30 million people in the education and corporate learning markets.
Instructure is currently a public company, and its executives say the shift to private ownership will allow it to invest more in its software and potentially make more acquisitions.
“As a leadership team, we spent a lot of time this year working on a plan for Instructure to double down on education, continue progress with Canvas LMS successes, and invest in our current customer base,” said Dan Goldsmith, Instructure’s CEO, in an interview with EdSurge. He added that under Thoma Bravo he expects to “really improve and amplify this plan”.
Under the agreement, Instructure shareholders will receive $47.60 per share. The company was founded in 2008 and went public in 2015 (at $18 a share) and plans to continue operating under the same management team after the acquisition.
Over the past few months, Instructure has faced difficult questions regarding its enterprise learning system, called Bridge, which has failed to meet internal expectations despite heavy investment.
Under new ownership, Instructure plans to continue to “reorganize elements of the business so that Bridge can act almost more like an independent startup within Instructure,” Goldsmith said. It also means separating Bridge’s underlying software code from that of Canvas LMS. As the CEO of Instructure said, “Bridge being closely tied to the mature Canvas engine makes it more difficult for Bridge to be nimble and adapt to the market at Bridge’s current size.”
Phil Hill, an edtech consultant who watches the LMS space closely, said the bigger question is how much Instructure will separate Bridge from the rest of the company. “Bridge has really obscured what Instructure does,” he said. Separating the two will help the company focus on Canvas, which “should be good for the general LMS market and good for the academic market.”
But whether the sale is good news for colleges and other education customers remains to be seen, Hill added. “Now it’s a waiting game to see how their strategy changes,” he said. “Don’t expect it to be the same.”
In the short term, Instructure remains open to other offers. The company said in a statement that its agreement with Thoma Bravo includes a 35-day “go-shop” period, “which allows Instructure’s board of directors and advisors to solicit alternative acquisition proposals from third”.
Reports from investment banks that cover Instructure called the deal fair for the company, and they don’t expect a bidding war during the 35-day buying period. They are also keeping a close eye on the future of the Bridge product. “We believe Bridge has been a source of capital expenditures and the largest source of losses for the overall business, while the more mature Canvas business is likely a much more profitable business,” according to a SunTrust Robinson Humphrey investment bank report.
Should this deal go through, it would be the second education company in Thoma Bravo’s current portfolio. In 2017, the private equity firm acquired Frontline Education, a provider of K-12 administrative tools.
Goldsmith, who became CEO of Instructure on day one of 2019, wouldn’t share what kinds of acquisitions he might make under its new owner, or what new features or products he might create. He only offered that “inorganic and organic growth will help us somehow accelerate and expand what we do.”
Under his leadership, Instructure purchased two businesses: a digital wallet tool for $43 million and a K-12 assessment platform for $42.5 million.
He said the company aims to serve the larger needs of education than just being an LMS. “It’s not just about trading market share between us and Blackboard or others,” Goldsmith said. “We all need to look to the future and understand that the trajectory of change and innovation in education, independent of LMS technology vendors, is moving at a speed and pace not seen in four decades. And that’s really the inspiration for where we’re going and where we want to be.
The biggest challenge, Goldsmith said, will be communicating the changes clearly to customers. “Probably the most important thing is to make sure we don’t underestimate the care we have to have with our customers and our employees,” he said. “If we don’t, well, we might miss a few beats and have a few stumbling blocks along the way.”
The company released a letter to customers today on its website as a first step in this communication effort.
Customers are indeed watching with suspicion. One of them is Thomas B. Cavanagh, vice provost for digital learning at the University of Central Florida, who was an early adopter of the Canvas LMS but is up for renewal in about two years. .
“I’m cautiously optimistic that it won’t have any negative impact,” he said in an interview with EdSurge. “The big question for us is: does this portend a change in their business model? One of the benefits of Canvas is that you only pay one price and most features are included. They don’t cloud you with add-ons. One concern is that a new owner might look for other ways to maximize revenue by changing their pricing practices, he said.
It also seeks to see if more intangible aspects of the business are preserved. “One thing everyone loves about Canvas and Instructure is the culture,” he said. “They have a fun, young spirit that everyone is kind of connected to. Hope it stays.
Holden Spaht, managing partner at Thoma Bravo, said he felt Instructure fit the mold for the type of business he was looking to acquire.
“We tend to look for these kind of really, really nice, neat cloud companies with high growth, good customers, great market position,” he said. “And then we ask ourselves: can we accelerate business growth, both organically and inorganically, by leveraging some of our operating philosophies and metrics?”
What would Spaht say to education officials who fear twinning will take away from them what they love about Canvas or change its culture?
“It’s an extremely valuable asset that the company has,” he said. “And we have no intention of changing anything. We are a private equity firm supporting management, so we will continue to invest heavily in the customer success function. »
Wade Tyler Millward and Tony Wan contributed to this article.
Editor’s note: This story has been updated to add commentary from Thoma Bravo.