An influential investor advisory firm has recommended that Instructure shareholders vote against a proposal to take the publicly-traded learning management system provider private for about $2 billion, according to an article from Reuters.
Institutional Shareholder Services, also known as ISS, reportedly said in a note to clients that “the conduct of the process, a seemingly uncompelling valuation, and a strong standalone case” warrants a vote against the deal.
On Monday, Instructure—based in Salt Lake City and best known for its market dominant Canvas LMS for colleges—pushed back in a statement and encouraged shareholders to vote Feb. 13 to approve the deal to sell itself to private equity firm Thoma Bravo.
Instructure “conducted an exhaustive, conflict-free, and well-publicized strategic review process, allowing any party to make its interest known to the Board,” said the statement. “Despite these efforts and a post-signing ‘go-shop’ period, no other party expressed serious interest in continuing purchase discussions at a price in excess of $47.60 per share.”
“Instructure’s Board believes that Thoma Bravo’s $47.60 per share all-cash transaction represents the best possible path to maximize stockholder value because it delivers certain and compelling value,” the statement continues. “The Board of Directors recommends that stockholders vote in favor of the transaction.”
Rishi Jaluria, a senior research analyst with D.A. Davidson & Co., said in an email that ISS’s concerns are unsurprising given the reaction of some shareholders to the deal.
Instructure shareholders Praesidium Investment Management, Rivulet Capital, Lateef Investment Management and Oberndorf Enterprises have also publicly opposed the deal. They have lodged accusations against Instructure that include a lack of transparency in how Instructure executives found a buyer and securing a deal that undervalues the company.
“I do think this is a pretty big deal, since a lot of INST’s ownership is with the passive investors (Vanguard, Blackrock, etc.) that often listen to advisory firms like ISS and Glass Lewis,” Jaluria said in an email. “In my mind, this creates even more uncertainty ahead of the vote, as there is a chance it may not pass right now.”
Some academics have also responded negatively to the deal, raising concerns over student data. The deal also brings to mind the case of Blackboard, which was taken from a publicly traded LMS provider to private equity ownership in 2011. Blackboard has consistently lost market share to Instructure.
Instructure has maintained that the deal is fair—and a possible necessity—because Canvas faces growth headwinds while Instructure’s corporate LMS product, Bridge, has disappointed in performance.