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.
