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Scholastic sells off EdTech business

Scholastic Corporation has sold its Educational Technology and Services (EdTech) business to Houghton Mifflin Harcourt Company for $575 million cash.

The management team of the Educational Technology and Services business, including its president Margery Mayer, is expected to remain with the business as part of HMH. 

The business' approximate 800 employees are also expected to join HMH upon transaction close. 

EdTech had $249 million in revenue and $40 million in operating income in the 2014 fiscal year ended May 31, 2014. 

Furthermore, revenues were $175 million and operating income was $17 million for the first nine months of the current fiscal year ending May 31, 2015. 

Scholastic expects net proceeds from the sale, after taxes, transaction fees, and other expenses, of approximately $360 – $370 million. 

Scholastic says following the sale it will re-focus on its core businesses and develop relationships with its primary customers – teachers, parents, children, and schools. 

The company plans to re-invest the proceeds from the sale in its Children's Book Publishing and Distribution, Classroom and Supplemental Materials Publishing, and international business segments including New Zealand, while continuing to return capital to shareholders over time.

Richard Robinson, Scholastic chairman, president and CEO, says, "Scholastic has built a global business around the guiding principle of promoting school-based reading and learning. 

“This is an exciting time for our businesses with a renewed focus on books and reading in schools and at home.

“We now have a historic opportunity to further grow our Children's Book Publishing and Distribution, Classroom and Supplemental Materials Publishing, and international businesses."

"The EdTech business has a substantially different model for product development, marketing and sales from Scholastic's core school-based and consumer print and digital publishing businesses. 

“EdTech also requires longer lead times for selling and larger investments in product development. 

“Accordingly, we believe it is in the best interest of the company and its shareholders to accept this offer for the EdTech business.

“Scholastic plans to maintain its balanced approach to capital allocation, re-deploying the proceeds from this transaction into strategic investments to accelerate profitable sales growth in our core children's books and educational publishing businesses in the US and around the world, while continuing to return capital to shareholders over time," says Robinson.

Robinson concluded, "We are proud of the trail-blazing EdTech business we have built over the past two decades, with its focus on proven programs and services which boost student achievement in reading and math. 

“We are confident that our solutions-based programmes and our team will continue to thrive as part of HMH."

The transaction is expected to close in the second calendar quarter of 2015, subject to regulatory approvals and customary closing conditions.

Greenhill & Co. acted as financial advisor to Scholastic on the transaction.