Google Capital valued Renaissance Learning at $1 billion when it put $40 million into the educational assessment company in mid-February. Just a month later, Renaissance Learning is worth $1.1 billion — to new owner Hellman & Friedman, which bought the company on Monday and is announcing the deal today.
Essentially, Renaissance is being traded from one private equity firm to another.
Previously, Permira had taken the 30-year old edtech player off of the public markets in 2011 by buying it for $455 million.
While it’s nice to get your cash back, this isn’t the ideal scenario for Google Capital, which would presumably have liked the company to have the time to make a bigger and better return. As such, Google Capital is expected to take another minority stake alongside the new owner, according to a Renaissance Learning spokeswoman. Details had not yet been worked out as of late Wednesday.
But this was the sort of offer that Renaissance’s majority owner couldn’t refuse. “For private equity firms, they look for great financial returns,” said Renaissance Learning CEO Jack Lynch. “This is an outstanding financial return for Permira. They don’t have strategic interest in K-12 education.”
Renaissance’s value is shooting up alongside trends like iPads and Chromebooks becoming more pervasive in schools, Lynch said. “More than anything, teachers want to understand very quickly what students know and what they’re ready to learn next.”
And financially, Renaissance runs a very profitable business with revenue growing by 20 percent last year, Lynch noted.
“It’s a very high margin business,” he said. “We are in over a third of the schools in the U.S. and we provide services in 57 countries. Twenty million students use our services [at a cost of about $5 per student per year]. That’s pretty significant scale for cloud-based analytics.”
What’s next for Hellman & Friedman? It typically holds onto assets for four to seven years, said Lynch, who said he expects to continue running the Wisconsin Rapids, Wisconsin-based company with the current management team. Evenually, another private equity buyer, another IPO, or a strategic acquirer could be in the cards.
Why stay with private equity now that strategic investors like Google have taken interest? (Renaissance Learning is also working on distribution deals with Google Play alongside the stake.) “We’re investing another 50 percent than we did previously in R&D,” Lynch said. “If we had earnings pressure this year, it would have been very difficult to make the case for that investment.”