New Ownership for an LMS Giant: Private Equity Firm to Buy Instructure for $2 Billion

Dec 04, 2019

Instructure, best known for its Canvas learning management system, announced Wednesday that it is set to be acquired by the private equity firm Thoma Bravo for approximately $2 billion—unless a better offer comes along in the next 35 days.

Canvas has the largest market share in the U.S. when it comes to the LMS software that serves as the virtual classroom, online gradebook and other functions used in just about every college course these days. The company says its tools are used by more than 30 million people across the education and corporate learning markets.

Instructure is currently a public company, and its leaders say a move to private ownership will allow it to invest more in its software and potentially make more acquisitions.

“We as a management team have spent a lot of time this year working on a plan for Instructure to double down on education, to continue the progress with the successes of Canvas LMS and investing in our current customer base,” said Dan Goldsmith, Instructure’s CEO, in an interview with EdSurge. He added that under Thoma Bravo he expects “really enhancing and amplifying that plan.”

Under the agreement, Instructure shareholders will get $47.60 per share. The company was founded in 2008 and went public in 2015 (at $18 a share), and plans to continue to operate with its same management team after the acquisition.

In recent months Instructure has faced tough questions about its corporate learning system, called Bridge, which has not lived up to internal expectations despite heavy investment.

Under the new ownership, Instructure plans to continue “reorganizing elements of the company such that Bridge can act almost more like an independent startup within Instructure,” said Goldsmith. That also means separating the underlying software code of Bridge from that of the Canvas LMS. As the Instructure CEO put it, “Bridge being intertwined with the mature Canvas engine makes it more difficult for Bridge to be agile and adapt to the market at the size Bridge is right now.”

Phil Hill, an edtech consultant who watches the LMS space closely, said the biggest question is just how much Instructure will separate Bridge from the rest of the company. “Bridge has really been clouding up what Instructure does,” he said. Separating the two will help the company focus on Canvas, which “should be good for for the LMS market in general—and good for the academic market.”

But whether the sale is good news for colleges and other education customers remains to be seen, Hill added. “It’s now a waiting game to see how their strategy changes,” he said. “Don’t expect it to be the same.”

In the short term, Instructure is still open to other offers. The company said in a statement that its agreement with Thoma Bravo includes a 35-day “go-shop” period, “which permits Instructure's Board of Directors and advisors to solicit alternative acquisition proposals from third parties.”

Reports from investment banks that cover Instructure called the deal fair to the company, and they do not expect a bidding war during the 35-day shopping period. They are also watching the future of the Bridge product closely. “We believe Bridge had been a source of investment spend and the main source of losses for the overall business while the more mature Canvas business is likely a much more profitable business,” according to a report from investment bank SunTrust Robinson Humphrey.

Should this deal go through, it would be the second education company in Thoma Bravo’s current portfolio. In 2017, the private equity firm acquired Frontline Education, a provider of K-12 administrative tools.

Thinking Big

Goldsmith, who became CEO of Instructure on the first day of 2019, would not share what kinds of acquisitions that it might make under its new ownership, or what new features or products it might build. He only offered that “both the inorganic and organic growth will help us sort of accelerate and broaden what we’re doing.”

Under his watch, Instructure purchased two companies: a digital portfolio tool for $43 million and a K-12 assessment platform for $42.5 million.

He said the company is setting its sights on meeting the bigger needs of education than just being an LMS. “This is not just about trading market share between us and Blackboard or others,” Goldsmith said. “We need to all look forward and understand that the trajectory of change and innovation within education, independent of LMS technology providers, is moving at a rate and pace that that hasn’t been seen for four decades. And that is really the inspiration for where we are going and where we want to be.”

The biggest challenge, Goldsmith said, will be communicating the changes clearly to customers. “Probably the biggest thing is making sure that we don’t underestimate the caretaking we need to have with our customers and employees,” he said. “If we don’t do that, well, then we could miss a couple beats and have a few stumbling blocks along the way.”

The company posted a letter to customers today on its website as a first step in that communication effort.

Customers are indeed watching warily. One of them is Thomas B. Cavanagh, vice provost for digital learning at the University of Central Florida, which was an early adopter of the Canvas LMS but is up for renewal in about two years.

“I’m cautiously optimistic that it’s not going to negatively impact anything,” he said in an interview with EdSurge. “The big question for us is: Does this foretell a change to their business model? One of the nice things about Canvas is you just pay one price and most of the features are included. They’re not nickle and diming you with add-ons.” One concern is that a new owner might look for more ways to maximize revenue by changing its pricing practices, he said.

He’s also looking to see whether more intangible aspects of the company are preserved. “One thing that everybody likes about Canvas and Instructure is the culture,” he said. “They’ve got a fun, youthful sort of spirit that everybody kind of connected to. Hopefully that remains.”

Holden Spaht, a managing partner at Thoma Bravo, said it felt Instructure fit the mold for the kind of company it looks to acquire.

“We tend to look for these sort of really, really nice, neat cloud businesses with great growth, great customers, great market position,” he said. “And then we ask ourselves: Can we accelerate the growth of the company—both organically and inorganically—by bringing some of our operating philosophies and metrics to bear?”

What would Spaht say to education leaders who worry that the pairing could take away what they like about Canvas, or change its culture?

“That’s a hugely valuable asset that the company has,” he said. “And we have no plans on changing any of that. We are a management-supportive private equity firm, and so we’ll continue to invest heavily in the customer-success function.”

Wade Tyler Millward and Tony Wan contributed to this article.

Editor's note: This story was updated to add a comment from Thoma Bravo.


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