At a time when a sour economy has hurt the school software market, K-12 software company Plato Learning of Bloomington will acquire competitor Archipelago Learning of Dallas for $291 million in cash.
Archipelago stock jumped nearly 23 percent in Monday's trading, closing up $2.05 at $11.09, just a penny under Plato's $11.10 offer price. The deal is expected to close by about midyear.
The acquisition of Archipelago will let Plato offer online learning tools to students from pre-kindergarten to postsecondary school, Plato CEO Vin Riera said in a statement. The combined companies will reach more than 50,000 schools and 17 million students, the companies said. The expanded portfolio will include virtual instruction, test preparation, supplemental classroom instruction and college and career readiness tools.
Plato Learning executives did not return phone calls Monday, and a spokesman was unable to provide even the number of people Plato Learning employs.
The "enterprise value" of the transaction, once Archipelago's $74.9 million debt and $64.6 million in cash are factored in, is about $303 million, said Peter Appert, an analyst with Piper Jaffray Companies in Minneapolis.
Appert said Archipelago was willing to be acquired because of its relatively low market capitalization, which, even after Monday's run-up in the stock, was $281.8 million.
"Selling provides liquidity for the private equity owners, which would otherwise be difficult to achieve," Appert said, noting that the company faced a "challenging end-market demand given significant funding pressures in the K-12 market."
Monday's deal is the latest example of private equity firms snapping up private education firms.
In September, for example, Providence Equity Partners completed a $1.6 billion acquisition of Blackboard Inc., a Washington, D.C., based provider of enterprise technology for online learners. The same month, Pearson PLC completed the acquisition of Connections Education from an investor group for $400 million. Connections operates online or ''virtual" public schools in 21 states.
Plato Learning itself was acquired in May 2010 for $144 million and is now owned by private equity firm Thoma Bravo. In its last year as a public company, Plato reported 2010 sales of $64 million and earnings of $1.7 million and had 312 employees.
In October, Plato made an unsuccessful attempt to acquire Wisconsin-based Renaissance Learning after Renaissance had announced plans to be acquired by another firm. A federal judge in Wisconsin refused to stop the original merger talks to allow Plato to make a higher bid.
Archipelago said its board of directors unanimously approved the transaction and recommended it to stockholders. Providence Equity Partners, which has a major stake in Archipelago, and other shareholders representing approximately 49 percent of the voting power of the company have agreed to support the transaction, the company said.
Archipelago, founded in 2000, is a subscription-based provider of education software in the United States, Canada and the United Kingdom. The company had more than 400 employees at the end of 2010, according to its annual report.
Archipelago earned $7.2 million on revenue of $19.5 million in the fourth quarter of 2011, or slightly better than expected, Appert said.
Plato Learning, which sells educational software and services to K-12 schools, is a descendant of the former Control Data Corporation's PLATO computer-based education system of the 1970s.
The original PLATO -- an acronym for Programmed Logic for Automated Teaching Operations -- was a favorite project of Control Data's longtime CEO, William Norris. But it wasn't financially successful because it was expensive and relied on connections to large mainframe computers. In 1989, Control Data sold the PLATO trademark and some educational software rights to a company that later became Plato Learning.