Houghton Mifflin Harcourt to Acquire Scholastic Ed-Tech Businesses for $575M
UPDATED
A major portion of Scholastic Corp.’s educational technology and services business will be purchased by Houghton Mifflin Harcourt for $575 million in cash, in an agreement the companies announced today.
In describing the deal, the education providers said that it focused on Scholastic’s ed-tech and services operations. But a spokesman for New York-based Scholastic later clarified to Education Week that the purchase is centered on the company’s digital intervention services, and that Scholastic will continue to have an extensive presence in the overall ed-tech space, in digital classroom magazines, the streaming of e-book delivery, and digital reading and multimedia content, among other areas.
For Boston, Mass.-based Houghton Mifflin Harcourt, the acquisition offers a boost in its intervention curriculum and services and extends its product offerings in key growth areas, including educational technology, early learning, and education services, according to its announcement.
“As HMH drives a learning transformation powered by technology, we believe the ed-tech segment of Scholastic will strengthen our offering in both K-12 and other key growth areas, including digital intervention, early learning, consumer and professional development,” said Linda K. Zecher, HMH’s president and CEO, in the company’s statement.
In an interview, Zecher said the acquisition reflects the company’s determination to expand its capacity to work with different student populations, particularly struggling learners—in response to mounting demand from K-12.
“It’s a very large market that’s [concentrated in] the intervention space,” Zecher said.
The acquisitions from Scholastic give Houghton Mifflin Harcourt “a total solution we’ll be able to offer,” she added, “not just for kids who are on grade level, but also for those who are behind.”
Schools’ needs for curriculum and resources that can help struggling learners are being fueled by a variety of factors, Zecher said. Among them: the needs of English-language learners and other diverse student populations, the pressure created by test-based accountability systems, and the overall need to raise the skills of students lagging below grade level, Zecher said.
Providing intervention for struggling learners has emerged as a “national competitiveness issue,” Zecher argued.
Zecher also said the deal also signals an increase in her company’s focus on the pre-kindergarten market, which she sees as poised for strong growth. Houghton Mifflin Harcourt will be buying the Scholastic program Big Day for PreK as part of the deal.
Across the country, states and cities are investing heavily in early learning, Zecher said. Those policies are taking hold as a growing body of research showing shows the importance of building a strong preK foundation for students’ later academic development, she added.
Sales to schools requires a substantially different model for product development, marketing, and sales from Scholastic’s core school-based and consumer print and digital publishing businesses, Scholastic acknowledged in its release.
“Ed tech also requires longer lead times for selling and larger investments in product development,” said Richard Robinson, Scholastic’s chairman, president and CEO.
Scholastic’s ed-tech business has been operating at a loss. In the last quarter reported, the company’s ed-tech revenue declined 4 percent, to $34.3 million, while Scholastic’s overall sales increased 2 percent in that quarter, according to results announced by the company on March 26. The ed-tech segment’s operating loss increased by
The company attributed the decline mostly to lower math product sales and lower consulting revenues in its International Center for Leadership in Education unit. Sales of core literacy publishing product were essentially flat compared to the prior year; however, both new business and expansion sales of READ 180® stages, along with technology support services, were higher in the current quarter as compared to the prior year period, the company said.
Houghton Mifflin indicated that the management team of the ed-tech business, including its President Margery Mayer, is expected to remain with the business as part of HMH. About 800 employees work at the soon-to-be acquired portion of Scholastic’s business, and those workers are expected to join HMH when the transaction is closed.
The sale is expected to be completed by June 30, subject to regulatory approvals and customary closing conditions.
Associate Editor Sean Cavanagh contributed to this report.
[UPDATE: This post has been updated with additional information from Scholastic and from HMH CEO Linda Zecher.]
See also:
- Houghton Mifflin Harcourt Launches Internal Tech Incubator
- K-12 Print Needs Persist Despite Digital Growth
- Houghton Mifflin Makes Second Acquisition in One Week
Recent deals such as LinkedIn’s move to acquire online tutorial company Lynda.com and this Houghton Mifflin Harcourt announcement demonstrate corporate giants see value in Ed Tech and that they—and the market—very much need startups. As HMH is to a big ocean liner (which is becoming even bigger with the Scholastic business)—we are to a speed boat. They need startups as the testing grounds for really good ideas and new markets. And startups need them for their experience, branding and industry strength.
Despite the ed tech acquisitions, we still see the big guys ignoring two to six year old population—the ages when children’s brains are developing and learning the most. It’s given many startups, including us at Monkimun, the opportunity to dive into the hole of this market and provide learning tools for these parents and children.
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