Instructure, the publicly traded company best known for its Canvas learning management software that is a market leader among colleges, made two big moves Tuesday in its push to sell to a private equity firm.
For one, CEO and board member Dan Goldsmith announced that he will resign both positions, with his last day on March 6. A group of senior executives will lead the company until a new successor is found through an executive search firm.
Also, Instructure’s board has approved private equity firm Thoma Bravo’s offer to buy the company at $49 a share in a deal that involves a “tender offer,” meaning Thoma Bravo can buy shares directly from shareholders and, perhaps most importantly, avoid a shareholder vote to approve the previous deal of $47.60 a share (about $2 billion total). The planned Feb. 25 shareholder vote to approve a Thoma Bravo deal is canceled.
"The Board unanimously supports this structure as the clearest path to maximize value for all Instructure stockholders," Instructure Executive Chairman Josh Coates said in a statement. "We encourage all stockholders to tender their shares in support of the transaction."
The vote has been in question for months now, with two influential investor advisory firms recommending against the deal and various shareholders—including Praesidium Investment Management, Rivulet Capital, Lateef Investment Management and Oberndorf Enterprises—publicly opposing the deal.
The firms and shareholders have raised questions about how Instructure conducted a search for a new owner. Complaints have included Goldsmith’s role in the search, with allegations that he pushed for a deal that rewards leadership at the expense of shareholders.
Critics also complained that a director who participated in the buyer search, Kevin Thompson, previously worked with Thoma Bravo on another take-private deal, possibly impacting his judgment. And critics argued that Goldsmith may have picked a deal that protects the job of his sister, Jennifer, who is Instructure’s chief strategy officer.
Instructure has pursued a sale, in part, because of decelerating growth forecasted for its flagship Canvas LMS product for colleges and because of disappointing results from Bridge, a corporate LMS that Instructure built in house to expand its reach to large-sized companies.
This $49 a share offer is the third revision of the deal by Thoma Bravo. Instructure’s board rejected an offer last week for $48.50 a share.
Sale More Likely
Goldsmith joined Instructure in 2018. Under his watch, Instructure bought assessment software provider MasteryConnect and digital portfolio maker Portfolium. Plus, the company exceeded $250 million in annual revenue in 2019 and achieved positive free cash flow for the first time in its history, according to a company statement.
Last week, a filing with the U.S. Securities and Exchange Commission revealed that Goldsmith gave up about half of the equity in the compensation he'd receive if a Thoma Bravo deal closed. He originally stood to receive $473,000 in cash plus $22 million in equity.
Two investment banks published reports Tuesday suggesting the moves increase the chances of Instructure’s sale. “We're not surprised by the revised $49/share offer, as it ultimately increases the likelihood of the deal getting completed at a similar price point,” according to a report from investment bank Raymond James.
“Clearly the dynamics are fluid with CEO Dan Goldsmith stepping down, which on the margin may also increase the likelihood of voting for the deal,” according to the report. “At the same time, our conversations with fundamental investors suggest that $49 was not a sufficient share price with the belief that Canvas could” exceed 40 percent in combined growth rate and profit margin in the next few years.
Investment bank SunTrust Robinson Humphrey also said the latest actions by Instructure make the deal more likely to happen. But it also warned of negative impacts from so much change at Instructure in just a few days. “What seems like an abrupt resignation to us could create increased uncertainty as it relates to one of the company’s key constituents, its customers,” according to a report by the bank.
Education technology analyst Phil Hill said in a blog post that the “aggressive moves” to complete the deal suggest Thoma Bravo has more in mind for its role in the world of edtech. The private equity firm also owns Frontline Education, a provider of school administration software. “Bravo is sitting on a pile of cash ($12+ billion in their latest round), and there are likely bigger plans that depend upon this Instructure acquisition,” Hill said. “We’ll have to see.”
