Instructure Considering Sale OptionsAuthor Phil Hill, Blog /7 Comments/by Phil Hill
Instructure, maker of the popular Canvas LMS, announced this morning that they are reviewing strategic alternatives.
Instructure (NYSE: INST) today announced that in response to interest received from multiple third parties, its board of directors, supported by management, has commenced a process to explore strategic alternatives in order to maximize shareholder value. These alternatives may include continuing as a standalone public company, going private, or being purchased by a strategic partner. The board has retained J.P. Morgan as its financial advisor and Cooley LLP as its legal advisor in connection with the review.
“Consistent with its duties and in response to interest from several parties, our board of directors has determined that it is prudent to undertake a review of alternatives to identify the best way to maximize shareholder value,” said Josh Coates, Chairman of the Board at Instructure. “As the board conducts its review, we remain focused on executing our strategy with an increased focus on the education market as well as the previously-announced strategic review of Bridge.”
This news comes on the heels of several articles about investor pressure being applied on the company.
- April 2019 – Activist investor Praesidium takes 5+% stake in Instructure and pushes thesis that Instructure would be more valuable by selling off Bridge (corporate learning market) and concentrating on Canvas (academic market).
- Early October 2019 – Instructure announces investor day on December 3rd where “management team will describe the company’s new strategy and operating model, key decisions about future financial goals, and the plan for focused capital allocation”. (couldn’t find direct link anymore, so using Google cache)
- Late October 2019 – Activist investor Sachem Head takes a stake in Instructure and pushes company “to explore alternatives, including selling itself, two people familiar with the matter said”.
- November 2019 – Praesidium joins Sachem Head in call for Instructure to explore a sale.
- Today – Jana joins activist investor pool.
As part of today’s announcement [emphasis added]:
The company has not set a formal timetable for this exploration, nor has it made any decisions related to strategic alternatives at this time. While Instructure is pursuing opportunities, there is no assurance that the process will result in a transaction. The company does not expect to make additional public comment regarding these matters until the board approves a specific action or otherwise concludes the process.
The previously scheduled financial analyst day on December 3 has been canceled to allow management and the board to explore these strategic alternatives for the company.
Disclosure: I will note more prominently than usual that Instructure is a subscriber to the MindWires LMS Market Analysis data service (as are many of their competitors), and that we have a number of investment firms who are also subscribers to the service and pay for in-depth market data and research.
There will be more analysis coming in the future, but I would note several items to set context, especially for academic readers:
- Bridge is a corporate learning LMS created by Instructure (not a corporate acquisition) starting in 2015, the same year that Instructure went public. This additional product line, with its larger available market, was a key part of Instructure’s IPO story.
- When Blackboard went through a similar process and actually went private (i.e. a private equity firm acquired the company, taking them off of the public stock market), the process lasted from early summer 2011 until October 2011. That should give some sense of the timeframe of these decisions.
- Blackboard also considered a sale in 2015 but did not actually change ownership – these processes do not always result in a sale.
- At the risk of annoying some readers (again), I have pointed out that “there are strong arguments that company financial health in 2018 / 19 for the providers will continue to have an outsized impact on the future of LMS offerings”. Consider PowerSchool’s planned acquisition of Schoology and Blackboard’s recent debt ratings news (more on that in future post). This news is as much about the LMS market as it is about one company.
- For academic community, it is worth noting that much of the investor-based pressure is for Instructure to focus more on supporting Canvas, not less. Instructure management has made it a point to say that they are increasing investment in Canvas, but today’s news puts even more emphasis on that need.
Keep watching – this should be interesting for the LMS market.
Update 11/14: Added note about Jana disclosing investment. Also added bullet about Bridge history.
We’ve seen this before…in early 2000s, when a market-leading innovative LMS, named WebCT, invented by a brilliant computer scientist (re: Josh Coates) was purchased by a money-grubbing, soul-sucking private equity company in Boston. The result was Blackboard, of course, and we know how that ended for WebCT and it’s users.
Hello, Moodle? You still around??
Phillip, you really have a colorful and creative way of rewriting history. WebCT was purchased by a company in Boston, which was later acquired by Blackboard. When Blackboard took over operations for WebCT there was thousands of bugs in the backlog for Vista 3, and CE6/Vista 4 was almost dead on arrival. Blackboard did nothing to WebCT except deal with a bunch of angry clients who couldn’t even access the grade center because of bugs.
From a customer standpoint this could be unsettling . Phil, perhaps you could convince one of these activist investors to do an interview with you to explain how what they are proposing would increase investor value etc? Investors fail to understand the LMS market and customer dynamics which is totally different than any other EdTech market I have come across in my 28 years in higher education. I think customers like myself who do not understand how these investment ideas work, could use some more info and understanding.
Clarification on Bb timeline:
– Privately-held, VC-funded 1998 – 2004
– Public company 2004 – 2011
– Acquired WebCT 2005/6
– Acquired ANGEL 2009
– PE-owned (Providence) 2011 – present
– Original exec team (Chasen CEO) thru 2012
– New exec team (Bhatt CEO) 2012 – 2015
– New new exec team (Ballhaus CEO) 2016 – present
– Founded by Brian Whitmer and Devlin Daley after taking course from Josh Coates 2008
– Coates initial funding 2008
– Corey Reid first CEO 2008 – 2010
– Josh Coates CEO 2010 – 2018
– Privately held, VC funded 2009 – 2015
– Publicly traded 2015 – present
– New exec team (Goldsmith CEO) 2019 – present
Kevin, heading out for Moodle GlobalMoot, but I plan on analysis post or two addressing these questions as soon as I find time.