Houghton Mifflin Harcourt Sold to Private Equity Firm for $2.8 Billion
Houghton Mifflin Harcourt, one of the biggest and best-known providers of academic materials and other resources to schools, is being acquired by private equity firm Veritas Capital for about $2.8 billion in cash.
HMH, which specializes in core curriculum, supplemental, and intervention solutions, said the sale will allow it to “accelerate our momentum and increase our impact” for users of its products.
The deal is expected to close in the second quarter, with CEO Jack Lynch remaining in charge of the company.
Private equity firm Veritas Capital, which acquired Cambium Learning in 2018, will pay $21 for each HMH share, which represents a 36 percent premium to the company’s unaffected stock price as of Jan 13.
“With accelerating billings growth, strong free cash flow and a transformed cost structure, we are at an important inflection point, and the time is right to move into the next phase of our long-term growth strategy alongside a partner that brings significant industry expertise,” Lynch said in a statement.
HMH has been one of the education companies that has benefited from the pandemic and the shift to remote learning. The company’s share price has more than tripled in the last year.
Shares of HMH are up more than 15 percent on Wednesday since news of the acquisition surfaced a day earlier.
Before the pandemic, and the ensuing rise of remote learning, the public markets had not been kind to “publishing oligopoly” players such as HMH that have been working to transition to more digital offerings, said Adam Newman, a founding partner of Boston-based consulting firm Tyton Partners.
Newman noted that within the last year and a half or so, HMH’s position in the public markets “had turned a really nice corner.”
“This is a good scenario if you’re HMH because it allows you to continue to make progress on the objectives you’ve set,” he said, “and not have to on a quarterly basis get in front of a bunch of shareholders and spend a lot of time defining and describing what you’re doing and why.”
Moving forward, Newman said, there’s still a lot of growth potential in several different areas of HMH’s business.
Similar to other legacy education companies, HMH has been shifting its core education business away from textbooks to focus on digital products, as the company says it experienced 300-percent growth in digital platform usage in 2020.
Last year, the company sold its consumer books business to major general publisher HarperCollins for $349 million.
HMH says it is the largest learning technology company in the K-12 market, serving 90 percent of U.S. schools, teachers, and students.
The acquisition by Veritas Capital was especially interesting, Newman said, because it gives a private equity firm with an already solid presence in the education market an even bigger footprint.
Aside from its ownership of Cambium Learning, Veritas Capital also has a majority stake in Blackboard, a prominent K-12 learning management system, and Anthology, a student information system used for higher education.
“You’re looking now at a private equity player with those three businesses as having one of the largest footprints in the K-20 education system,” Newman said. “It will be interesting to see what happens over time with that combination.”
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