Learning Management Provider Instructure Weighing Options — Including Sale

Managing Editor

Instructure, the publicly traded company that runs the widely used K-12 learning management system Canvas, has announced it is exploring a number of “strategic alternatives,” including the possible sale of its business.

The company, which also sells learning management systems in higher education, said in a statement that it does not have a definite timeline for exploring its options.

But the possibilities it laid out include getting bought, going private, or continuing as a standalone company.

The Utah-based company also said there’s no guarantee that the process will result in any kind of sale or transaction. 

“[O]ur board of directors has determined that it is prudent to undertake a review of alternatives to identify the best way to maximize shareholder value,” said Josh Coates, Instructure’s chairman of the board, in a statement.

Instructure has faced pressure from activist investors Praesidium Investment Management, Sachem Head Capital Management, and Jana Partners to explore a sale, according to recent reporting from Bloomberg. Much of investors’ concerns focuses not the LMS side of Instructure’s business, but rather its employee development software program, Bridge.

Kevin Oram, Praesidium’s co-founder and managing partner told Bloomberg in an interview that Canvas’ big footprint in the learning management space in K-12 and higher education is attractive to potential suitors. Canvas’ share of the business could be worth a much as $2.5 billion, he argued, and selling off Bridge would make the Canvas side of the operation even more valuable.

“The platform is extremely powerful because it has such a dominate market share,” Oram added. “We think it has customer retention rates of close to 100 percent. I don’t think they’ve ever lost a customer. That’s really valuable.”

A spokesman for Instructure declined comment, beyond the company’s initial announcement about exploring a sale.

Customer Demand, Investor Demand

In announcing the company’s quarterly results last month, Instructure CEO Dan Goldsmith said that while business opportunities with Bridge have grown, “it is still not delivering at the level I want it to be at.”

Goldsmith said Instructure has begun a reorganization that will have Bridge operate independently of its education business, and that the company’s management team will “increase its focus more on Canvas and our growth opportunities in education.”

In the company’s quarterly report, Instructure officials noted that to date the company has derived a “substantial majority” of its revenue from Canvas, and winning over new customers in the K-12 and higher education learning management system market will be critical to its future growth.

The report said the prospects for Bridge, which the company launched in 2015,  are uncertain. Instructure expects to cope with substantial costs in sales and marketing and research and development in trying to make gains in the corporate market, the report said.

Over the past year, investors have been generally bullish on Instructure. Its stock price has risen from about $35 per share a year ago to $53.64 today.

Phil Hill, the co-founder of the consulting and market analysis firm MindWires LLC, said in an e-mail to EdWeek Market Brief that Canvas has an impressive record in winning and retaining its K-12 and higher education customers, and is a co-leader of the school market for learning management systems, along with Google Classroom.

(Instructure, along with some of its competitors, is a subscriber to a market analysis service that Hill’s company runs.)

News of potential changes to Instructure come less than a month after news that the LMS provider Schoology will be acquired by PowerSchool, which produces student information systems. Hill said the LMS market is an attractive one, but that it’s easy for companies to become undone by lofty expectations.

“There is consistent and growing demand from customers, as schools in K-12 and in higher ed increase their adoption not just of the enterprise LMS, but of a smaller grouping of LMS solutions,” Hill said. “The challenge is not so much customer demand as it is investor demand — return on investment in a difficult market.”

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