Blackboard to go Private: Giving the Company Freedom to Invest

Over the last ten years Blackboard has been one of the most successful learning technology companies in the market. Its platform is now the dominant system for secondary and university education and has been growing market share in primary education and in the corporate market. The company’s corporate LMS business is now in the top 10 players in our research, and continues to gain momentum.  (Blackboard’s market share is shown in our LMS 2011 industry study.)

As a public company (since 2004), however, Blackboard has to continue to show profitable growth in order to drive its stock. To find new growth markets, the company has expanded into mobile applications, campus security systems, analytics, student services, and corporate learning – and acquired Presidium,  Angel Learning and WebCT.  Despite all these efforts and the company’s strong market share in the higher education market, business has slowed.  While still a slowly growing company, its days as a hot growth stock seem to be over (growth of around 16% YTY in Q1), and profits have slowed to zero in the last two quarters.

There are many reasons for this.  These include the incredible growth of Moodle and Sakai-based academic learning systems and the general slowdown in education spending in general. Educational institutions are typically risk-averse organizations, and given the tight economy and shifting demographics in education, it has been easier and easier for them to postpone upgrades and use open source solutions to manage their education platform needs.  Under the pressure and scrutiny of being a public company, it has been hard for Blackboard to invest heavily in its next big act.  (I still think the corporate market is a big opportunity for the company – companies like Westinghouse Nuclear Power rely on Blackboard for nuclear operations training, for example.)

This is very similar to the change in ownership at Skillsoft, which occurred in early 2010.  In that case, as in the case of Blackboard, the company wanted to make new investments in growth markets but felt constrained by the public market.

Blackboard continues to be a very well run company with tremendous assets.  In the corporate market the company has a strong leadership team and has staked out a solid position in the market for departmental and informal learning systems.  (We have been considering using it for our own internal training.)  But without the freedom to invest heavily in new businesses (electronic content and publishing, for example), the company cannot continue to exploit its potential.

If this deal goes through (and the valuation of the company is still high at 3.3X revenues), the company will now have the freedom to invest more heavily in new business areas.  I do not expect this deal to impact Blackboard customers at all – in fact it is likely to be positive.  As a private enterprise the company can spend more time investing in its most profitable businesses, and deal more aggressively with the onslaught of open source competitors.

Ray Henderson, the leader of the education business, posted his thoughts here – and as one can see, the comments are all positive.