Private Equity Firm Buying a Majority Stake in Discovery Education for $120 Million

Contributing Writer

Francisco Partners, a technology-focused private equity firm, is acquiring a majority ownership of Discovery Communications’ education business, Discovery Education, for $120 million.

Under the terms of the agreement, Discovery Communications will retain a minority equity interest and license the Discovery Education brand to the business, according to a statement. Discovery Education’s current management team, led by president and CEO Bill Goodwyn, will operate the company as a standalone business upon the closing of the transaction, which is expected to occur in the first half of 2018.

Discovery Education provides digital content and professional development for K-12 classrooms. The company, based in Silver Spring, Md., partners with administrators, teachers, students, and organizations worldwide to create digital learning environments for students.

“This transaction represents an incredibly exciting opportunity for Discovery Education to accelerate its growth with Francisco Partners, while also maintaining its longstanding partnership with the Discovery Communications family,” Goodwyn said in a prepared statement, adding that the investment will allow Discovery Education to further expand its reach and impact domestically and around the world.

Added Jason Brein, a partner at Francisco Partners: “We are impressed by Discovery Education’s positive impact on student learning, and are excited to help support Discovery Education as it transforms teaching and learning around the globe.”

Tech Investors Getting Comfortable in Education

Discovery Communications has been informally looking for some sort of exit for Discovery Education for several years, said Adam Newman, managing partner at Tyton Partners, an advisory firm that serves clients across the education, information and media markets.

“In some way, it’s no surprise,” he said. “Some investors have been trying to find a way to carve that business out. The fact that someone did is less than surprising than who it is.”

There are very few, relatively large high-performing education businesses with more than $100 million in revenue and decent profitability, he explained, comparing the sector to a pyramid with a limited number of investment opportunities at the top.  “There’s a whole segment of these investors that need to put significant dollars to work in any one transaction,” he said. “A lot of investors are now focusing on education and getting comfortable with education as an investment area.”

This purchase is Francisco Partner’s latest acquisition in the education sector. Last year, the firm acquired digital literacy company myON from Capstone, a publisher of children’s books and digital reading products and services for an undisclosed sum.

Francisco Partners is not the only technology investor to grow its portfolio with a majority stake in an education business this year. In January, private equity firm Silver Lake made its first investment in the education space, purchasing a majority stake in digital education technology company Weld North Education from KKR & Co. for nearly $1 billion.

Newman expects that other education companies will be coming to market in the near future. “What’s interesting in this transaction is Discovery is retaining an interest in this business, he said. ”My assumption would be, if I’m Francisco Partners, it’s valuable for me to continue to have a connectivity with the parent company because of the brand halo and intellectual property assets.”

At the same time, he continued, because the business has been carved out from within a larger corporate structure and is now on its own two feet, it will probably allow Discovery Education to be more focused.

“They will undoubtedly have different levels of access to capital and have follow-on acquisitions,” he said. “I would expect to see some exciting things to continue.”

No Major Changes Now

Scott Kinney, president of K-12 Education at Discovery Education, added in a statement that in the short term, the company’s partners will see no change in their relationship with Discovery Education.

In the long term, he noted, “This new relationship tremendously enhances our ability to create the next generation of digital services and initiatives for educators worldwide.”

In early January, Discovery Communications announced plans to relocate its global headquarters from Silver Spring, Md., to New York City in 2019.

In an e-mail to EdWeek Market Brief, a Discovery spokesperson said Discovery Education will stay in the Silver Spring headquarters of Discovery Communications until the sale of the building.  After that, he noted, Discovery Education’s plan is to co-locate with Discovery Communications in the organization’s planned Maryland Network Hub.  Discovery employs around 1,300 people in the Silver Spring area.

The sale and closure of the Silver Spring building is expected approximately one year from closing its acquisition of media company Scripps Networks Interactive.

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