Apollo Global Management is making a $2.5 billion investment in education technology with its purchase of McGraw-Hill Education. The private-equity firm, which specializes in leveraged buyouts, sees the acquisition as its entry into a growth industry.
“We look forward to leveraging the company’s leading portfolio of trusted brands and innovative digital learning solutions to drive growth through the ongoing convergence of education and technology on a global basis,” said Larry Berg, senior partner at Apollo, in announcing the deal, which is expected to be finalized early next year.
Education technology has proved attractive to investors over the last few years because of the rise in education costs, innovations in electronic devices, and an increasing demand for digital content for those devices. In fact, investment in education technology companies reached $930 million in 2011, according to a report in the Financial Post.
“I think the future trend is beginning to build a relationship with the individual student,” Eric Bassett, vice president at Eduventures, told eCampus News. “Students are not linear; therefore, institutions cannot have accountability unless you can begin to define impact on individual students. Everything that I’ve seen suggests that Apollo understands these trends.”
However, at least one New York banker said the deal could be a risky one for Apollo.
“Think about textbooks and government budgets getting crushed,” the banker told the New York Post. The unnamed banker added that the John Paulson and Guggenheim Partners’ 2010 investment in Houghton Mifflin ended badly when the publisher went bankrupt. In addition, McGraw-Hill Education reported its third-quarter revenues dropped 11% and its operating profits fell 20%.
The rest of McGraw-Hill, which announced its intention to split into two companies in 2011, will be renamed McGraw-Hill Financial with a focus on finance and global markets. The new company plans to use the estimated $1.9 million in profits from the deal to make acquisitions, pay back previous debt, and fund its stock buyback program.