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Acquisitions Increase in Education Technology
Vol. 19, Number 1 | Jan. 9, 2012
2011, More Change in 2012 Drives Scholastic Q2 Gains
CONTENTS
The merger and acquisitions market Revenue in the Educational Technology
1 Acquisitions Increase in 2011, More
for educational technology products and Services segment at Scholastic Change in 2012
accelerated in 2011 as competitors— (New York) increased 33.2% from the
1 Education Technology Drives
established and new—sought out prior-year quarter to $65.4 million, Scholastic Q2 Gains
online course providers, assessment driven by strength in three key areas of
1 EER Exclusive: Indiana Changes
and data solutions and learning plat- reading, math and services in the com- Textbook Adoption Process
form companies. EER tracked 28 edu- pany’s fiscal second quarter, ended
3 Budget Deal Maintains Obama
cational technology acquisitions in Nov. 30. Operating income more than Priorities
2011, up from the 15 tracked in 2010. tripled from the prior-year quarter
6 Ed Tech Stock Prices Drop in 2011
to $14.6 million, reflecting increased
The year’s biggest splash came in 8 Scantron Goes Private as M&F is Sold
sales, operating leverage and a favor-
October when Providence Equity able mix of higher-margin technology EER DATABANK
Partners (Providence, R.I.) took the product sales. 3 U.S. Department of Education
enterprise learning platform pro- Discretionary Spending,
vider Blackboard (Washington, D.C.) “Read 180 Next Generation continues FY2011 vs. FY2012
private in a cash transaction with an to perform extremely well since we 5 2011 Education Technology
enterprise value of $1.64 billion, plus launched it in May, with over $60 mil- Acquisitions
the assumption of $136 million in lion in sales to date,” said Scholastic 6 EER Stockwatch
debt. chairman, CEO and president Richard 7 Scholastic , Q2 & Six-Month Financial
Robinson. Results, FY2012 vs. FY2011
Valuations for the deals done for the
large companies in growth markets More than 20% of existing customers EER Pulse
See ‘Acquisitions’ on p. 4 See ‘Scholastic’ on p. 7 Impact of Access to
Online Algebra I
• Access to online Algebra I in
EER Exclusive: . grade 8 positively impacted
student achievement by approxi-
mately 5.5 scale score points.
Indiana Changes Textbook Adoption Process
• Students in the study group who
Indiana is a good example of how the textbook adoption process is changing took online Algebra I in grade 8
across the states as digital curriculum moves into schools. were twice as likely to participate
in an advanced course sequence
than students from control group
Traditionally, a core group of 20 textbook adoption states hold adoptions in schools.
different disciplines each year on a six-or-seven year cycle. Industry-wide,
• National grade 8 Algebra I
about half the textbook sales in a given year will come from adoption states enrollments have increased from
16% in the 1990s to 31% in 2007.
and half from open territories.
Source: Access to Algebra I: The Effects of Online
Mathematics for Grade 8 Students, a December 2011
Indiana historically has not provided state funding for textbooks but it did hold study from the Institute of Education Sciences, U.S.
Department of Education.
adoptions in a six-year cycle, creating lists of approved textbooks for districts
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Federal copyright law prohibits unauthorized reproduction by any means and imposes fines of up to $10,000 for violations.
Electronic Education Report  January 9, 2012
to order. Dissatisfied with social studies submissions in
2009, the state gave districts a blanket waiver to select
off-list materials and encouraged schools to look at new
ways to deliver instruction.
Indiana also adjusted its definition of textbooks to
include computer hardware, software and digital
content, a move also made by several other states.
In 2011, the state formalized the blanket waiver,
effectively eliminating adoptions. Going forward, the
state Department of Education will review curriculum
programs and publish rubric scores, rather than an
approved list. The exception will be in reading, for which
the department will create a binding list.
The switch from adoption to review may encourage more
digital providers to submit to the state.
“Digital providers are a little leery of the textbook
adoption process, maybe because they haven’t done
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it before and it’s unfamiliar,” Zach Foughty, assistant
director for college and career readiness at the Indiana
Department of Education, told EER. “We see a lot of
digital programs out there that are not submitting to be
on lists for one reason or another.”
When a state-approved list for math was expanded
from an original 2010 list after publishers were invited
to submit programs aligned to the Common Core,
additions to the list included the first adopted digital
program, Agile Mind (Grapevine, Texas). The Indiana
Department of Education previously conducted a 15-20
school pilot of Agile Mind, funded through a Classroom
Innovation Grant.
All participating schools adopted Agile Mind, while
outside of the schools in the pilot there was limited
interest in Agile Mind, probably due to lack of name
recognition, Foughty said.
In 2011, Indiana schools were scheduled to purchase new
science programs. Submitted programs were evaluated
on a rubric that looked at content, assessment, the role
of the teacher and the role of the student.
Statewide sales results were not tracked, but Foughty
said he believed schools were purchasing new science
programs as schools as schools looked to align with new
standards and emphasis on hands-on learning. Digital
programs, he said, were not viewed as good options for
science because of questions about how to replicate a
lab setting or a kit digitally.
Digital Options Drive Changes
One Indiana school district that did choose a digital
option is Franklin Community, a 5,000 student district
in a suburb of Indianapolis. Franklin selected the
Discovery Education (Silver Spring, Md.) science
program for grades 1-8, after committees of teachers
and parents reviewed and recommended the program.
Textbook money will go instead to fund a $60,000 license
with Discovery and the district will move more than
400 used laptops from high school classrooms to lower
grades to facilitate student access.
”With moving to digital content, there are many moving
parts for schools,” John Keller, assistant superintendent
for technology at the Indiana Department of Education
Electronic Education Report  January 9, 2012

told EER, citing the need to secure and organize digital

content and the devices to allow access to it.
“Perhaps the biggest issue is the changes in pedagogy
and instruction that need to take place to leverage the
move,” Keller said. “If we think of this as a form factor
change—the content that we used to get from textbooks
is on our screens—you may go about solving the
problems differently than if think about the options for
customization, personalization and how it is not going
to be the same content for six years anymore like it was
in a textbook.”
All of those things have very dramatic implications for
classroom instruction, Keller said and all of those things
together make for quite a challenge.
Like many things in schools, the shift to digital
curriculum is a slow turn, but one schools by-and-large
feel they absolutely have to make, according to Keller,
who has seen a significant swing from five years ago
when he felt a sense that technology was useful and
engaged students, but it was still a peripheral.
“When you start talking about not having textbooks—a
core component of instruction for a long, long time—you
are talking about fundamental change at the classroom
level,” Keller said. “It is no longer the computer as add-
on and nice to have but computer as critical tool for the
education enterprise.” ■
An expanded analysis of the textbook adoption
market—including publishers’ results from multiple
states—is available in Simba Information’s
2011 National Textbook Adoption Scorecard
and 2012 Outlook. For more information or
to purchase the report, call 888-297-4622 or
e-mail customerservice@simbainformation.com
Budget Deal Maintains Obama Priorities
The fiscal 2012 federal spending compromise reached in
December maintains key Obama administration priorities
and funds Title I and IDEA grants at levels slightly higher
than fiscal 2011.
The negotiated agreement between the White House,
Senate Democrats and House Republicans funds a
number of government agencies through Sept. 30, 2012.
The Department of Education will receive $45.29 billion
in discretionary spending, excluding Pell Grants for fiscal
2012, down slightly from $45.39 billion in fiscal 2011.
Overall, the education priorities of the Obama
administration survived the budget compromise process,
if at lower funding levels than requested.
Race to the Top, a competitive grant program designed
to encourage and reward states that are creating the
conditions for education innovation and reform;
achieving significant improvement in student outcomes

U.S. Department of Education Discretionary Spending, FY2011 vs. FY2012

(Selected K-12 categories, $ in millions)

Elementary and Secondary Funding FY 2011 FY 2012P FY 2012A

College & Career-Ready (Title I) $14,442.9 $14,492.4 $14,516.5
IDEA State Grants $12,277.9 $12,568.7 $12,393.2
Excellent Instr. Teams (Teacher Quality) $2,464.9 $0 $2,466.6
21st C. Community Learning Ctrs. $1,153.9 $1,266.2 $1,151.7
Race to the Top $698.6 $900.0 $549.0
School Turnaround (Imp.) Grants $534.6 $600.0 $533.6
School Choice and Flexibility $381.1 $110.0 $354.6
Striving Readers $0 $0 $159.7
Investing in Innovation $149.7 $300.0 $149.4

Source: U.S. Department of Education; P is the budget proposed by President Obama, A is the final Congressional appropriation after a 0.189%
across-the-board recission

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Electronic Education Report
and ensuring student preparation for success in college
and careers, was funded at $549 million for fiscal 2012.
Race to the Top began with $4.35 billion in funding under
the American Recovery and Reinvestment Act and received
$698.6 million for fiscal 2011.
Another ARRA program, Investing in Innovation,
which received $650 million under the stimulus, was
funded at $149.4 million for fiscal 2012. Investing in
Innovation provides competitive grants that expand
the implementation of, and investment in, innovative
and evidence-based practices, programs and strategies
that target achievement gaps, dropout prevention and
improving teacher and school leader effectiveness.
Funding for Title I, the largest federal K-12 program
which helps high-poverty schools and districts provide
educational services to students who are educationally
disadvantaged or at risk of failing to meet state standards,
will be $14.52 billion for fiscal 2012, up from $14.44 billion
in fiscal 2011.
With fiscal 2012 set, Congress now can look forward
to receiving President Obama’s fiscal 2013 budget
in February, as well as continuing its efforts around
the reauthorization of the Elementary and Secondary
Education Act. ■
Acquisitions, cont’d. from p. 1
in education are at record levels, Mary Jo Zandy, manag-
ing director at the investment bank Berkery Noyes (New
York), told EER. “For the right company, that’s very prom-
ising,” she said.
Distance Learning Companies Snatched Up
In May, virtual school provider K12 Inc. (Herndon, Va.)
acquired the online public and private schools of Kaplan
Virtual Education (Portland, Ore.). In the second half of
2011, the race to acquire providers of online courses and
distance learning accelerated.
In September, Pearson (London and New York) acquired
Connections Education (Baltimore). In October, Cambium
Learning Group (Dallas) acquired online course provider
Class.com (Lincoln, Neb.). In November, Plato Learning
(Bloomington, Minn.) acquired online course provider
EdOptions (Falls Church, Va.).
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 January 9, 2012
Pearson, consistently active with acquisitions made some
of the other bigger buys of 2011, acquiring the India-based
online tutoring company TutorVista for $127 million in
January and purchasing the data-driven educational soft-
ware company Schoolnet (New York) for $230 million in
April.
Software Companies in Demand
In 2011, the number of publicly traded, independent soft-
ware education companies continued to dwindle with
the sale in October of Renaissance Learning (Wisconsin
Rapids, Wis.) to the private equity firm Permira Funds
(Frankfurt, Germany and New York).
“The large companies with good technology, like
Renaissance Learning, are very much in demand,” said
Zandy adding, “If you are not in position to grow, there’s
probably not sufficient interest for a transaction to take
place.”
Even with the sale of the independent software companies
like Renaissance in 2011, as well as Plato Learning and
CompassLearning (Austin, Texas) in 2010, Zandy sees a
proliferation of new educational software market entrants.
“The education sector has creative people and continuous-
ly spawns new companies,” Zandy said. “Whether they will
be as uniquely successful as Renaissance, I don’t know.”
There are some good print companies in the education
market, but potential acquirers have to consider the invest-
ment that may be needed to transform them to digital,
Zandy said.
“If you are a print company and haven’t made the transi-
tion to technology, to online learning, it’s a much harder
sell,” Zandy said. “If you go to market with technology,
there is a lot of interest and the deal will get done.”
Looking Forward to 2012
Looking to 2012, Zandy sees a market for companies that
have won acceptance from school districts, have a working
revenue model and have good management in place. “At
every level, there appears to be financing available, princi-
pally equity,” she said.
Changes to curriculum and assessment driven by adoption
of the Common Core State Standards could shake up the
market, according to Zandy.
Electronic Education Report  January 9, 2012

2011 Education Technology Acquisitions

($ in millions)

Buyer Acquires When Price Comments

Plato Learning EdOptions Nov. NA Acquires online course provider
ePals Corp. Carus Publishing Nov. $15 Acquires magazine publishing group
Permira Funds Renaissance Learning Oct. $455 Educational technology stalwart is taken private
Providence
Blackboard Oct. $1,640 Enterprise learning platform provider is taken private
Equity
Providence portfolio company that provides portals, web
Blackboard Edline Oct. NA pages and community site software management is joined to
Blackboard at the same time Providence acquires Blackboard
Cambium
Class.com Oct. $4.5 Acquires online courses primarily targeting credit recovery
Learning Group
Software Acquires drawing & painting software from Houghton Mifflin
KidPix Oct. NA
MacKiev Co. Harcourt
Pearson Connections Education Sept. $400 Acquires operator of public virtual schools
To integrate computer-based math programs in post-secondary
Apollo Group Carnegie Learning Sept. $75
platform
EduTone K12complete Sept. NA Acquires e-commerce solutions provider
Acquires Newstogram platform and DailyMe service to help
ePals Nexify Aug. NA
match user interests and content
MCH Strategic Acquires database management & market research firm
Wilson Marketing Group Aug. NA
Data specializing in the early childhood market
New University
ePals July Merged companies named ePals Corp.
Holdings
Acquires digital content broker from Cambridge University
EduTone Global Grid for Learning July NA
Press to expand available content on e-commerce platform
Weld North
Education 2020 July NA Investment company acquires online course provider
Holdings
Archipelago
Alloy Multimedia June $2 Acquires online program for English-language learners
Learning
Stoneware LanSchool Technologies June NA Acquires cross-platform classroom management software
Certica Data management provider acquires TestWiz assessment
dataMetrics Software June NA
Solutions applications
Cengage Nat’l. Geo. School
June NA College publisher gains print and digital K-12 business
Learning Publishing
K12 Inc. Kaplan Virtual Education May NA Acquires online public and private schools
Leeds Equity Nobel Learning
May NA PreK-12 distance learning provider goes private
Partners Communities
Edline Th(i)NQ Ed Apr. NA Two providers of website and communication solutions are joined
Acquires provider of data-driven software for school
Pearson Schoolnet Apr. $230
improvement
McGraw-Hill Acquired assessment scoring and reporting developer to
Bookette Mar. NA
Education expand capacity at CTB/McGraw-Hill
DYMO/Mimio Headsprout Mar. NA Online reading programs will be paired with Mimio hardware
Market Data
WeAreTeachers Mar. NA Marketing database firm acquires social media website
Retrieval
Acquires controlling 76% stake in India-based online tutoring
Pearson TutorVista Jan. $127
company
Computerized
Educational Adaptive testing platform will be operated as indirect
Assessments and Jan. NA
Testing Service subsidiary
Learning

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Electronic Education Report  January 9, 2012

“There are small companies better positioned to compete tion programs and services provided by the company.
in that environment,” Zandy said. “I am sure Pearson and However, the Times story, along with other critical media
the major companies will do well, but there is an opportu- coverage of for-profit higher education companies, raised
nity for other companies to take some share.” ■ questions about the future of for-profit education.

Additionally, while K12 revenue soared in fiscal 2011,

Ed Tech Stock Prices Drop in 2011
Price per share of the educational technology stocks
tracked in the EER Stockwatch during 2011 dropped an
average 26.8% as education companies competed in a
turbulent funding and economic climate.
By way of comparison, the NASDAQ National Market
Composite Index—where three of the four stocks tracked
by EER trade—declined only 0.8% in 2011.
EER Stockwatch’s star performer in 2010, K12 Inc.
(Herndon, Va.), opened 2011 with a price per share
of $28.90 and ended the year with a price per share of
$17.94 as the company faced scrutiny from the media and
investors.
K12 stock traded in a range of $17.31 to $39.74 in 2011,
but price per share trended sharply downward after a
mid-December New York Times story slammed K12 as a
company that tries to squeeze profits from public school
dollars by raising enrollment, increasing teacher workload
and lowering standards.
ended June 30, to $522.4 million, up 35.9% from the prior
year, investors raised questions on profitability and cash
flow.
Falling Prices for All
Archipelago Learning (Dallas) stock traded in the $7.90-
$11.92 52-week price-per-share range, with the com-
pany ending the year with a share price of $9.67, down
2.1% for the year. Through the first nine months of 2011,
Archipelago revenue was $18.2 million, up 18% from the
prior-year period.
When reporting on third-quarter results, Archipelago
CEO Tim McEwen said the overall operating environment
for educational materials providers was challenging with
schools delaying purchase decisions amid budget pres-
sures and unanswered questions on the Elementary and
Secondary Act reauthorization and implementation of
Common Core State Standards. However, Archipelago
confirmed its previous financial guidance for full-year
2011, which called for revenue between $68 million and
$72 million.

K12 provided a vigorous defense claiming the article Cambium Learning Group (Dallas) revenue for the first
omitted important information on the structure of online nine months of 2011 was $140.8 million, up 6.1% from the
schools, student performance, teacher training and prior year period even as state and local budget constraints
professional development, and the full scope of educa- elongated buying cycles for large dollar transactions. The

EER Stockwatch 2011

Share Price Values for Instructional Software Publishers, Dec. 2-30, 2011
(closing prices)

Ticker Dec. 2 Dec. 16 Dec.30 % Chg 12/2-30 % Chg. YTD

Archipelago Learning ARCL $10.40 $9.84 $9.67 -7.0% -2.1%
Cambium Learning ABCD $3.04 $2.93 $3.02 -0.7% -13.0%
K12 Inc.* LRN $26.55 $18.90 $17.94 -32.5% -37.9%
Scientific Learning SCIL $2.83 $2.55 $2.51 -11.3% -17.2%
Average for Group $10.71 $8.56 $8.29 -22.6% -26.8%
NASDAQ Nat’l. Mkt. Composite Index 2,626.93 2,555.33 2,605.15 -0.8% -2.7%

*K12 is listed on the NYSE; all others listed on NASDAQ

Source: Yahoo! Finance; Simba Information

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Electronic Education Report  January 9, 2012

company’s stock-share price declined 13% during the year, trailing Frog Street Press (Grapevine, Texas) and Pearson
trading in a 52-week price-per-share of $2.48 to $3.98. (London and New York).

Scientific Learning (Oakland, Calif.) revenue for the first
nine months of 2011 was virtually flat with the prior-year
period—$33.4 million, down 0.7%. Scientific Learning
stock price per share declined 17.2% in 2011 as investors
grew restless waiting for company to build sales, be sold
or begin generating larger return-on-investment. Stock
traded in a 52-week price range of $2.36 to $3.67. ■
Scholastic, cont’d. from p. 1
have upgraded from previous versions of Read 180.
Robinson attributed the success of Next Generation to
its enhanced capacity for providing educators with data
on student achievement and the overall capacity of Read
180 to improve reading scores which has been affirmed
by recent research, including a Striving Readers study last
month from the U.S. Department of Education.
System 44, a technology-based phonics program that
integrates with Read 180 and Scholastic’s Big Day early
childhood curriculum, also generated double-digit sales
growth in the quarter.
Scholastic generated approximately $6.1 million in sales
in the Texas 2011 prekindergarten systems adoption,
according to data collected for Simba Information’s 2011
National Textbook Adoption Scorecard and 2012 Outlook,
a report from EER’s parent organization.
Seven publishers participated in the prekindergarten
systems adoption, in which schools in the state spent
$32 million through November. Scholastic’s estimated
sales put the publisher in third-place in the adoption
Scholastic’s math intervention program, Do the Math,
generated double-digit sales growth and now has been
sold in all 50 states. Additionally, Scholastic reported that
results for Math Solutions, the provider of professional
development and resources the company acquired in
September, have exceeded expectations.
“We’ve also added math specialists in all of our regions,”
said executive vice president Margery Mayer. “We not
only have product under development (including Math
180) and feel good about it, but we also feel good about
the capacity we’re building in the field to sell and support
math.”
Outlook for Second-Half
Scholastic company-wide revenue increased 2.6% from
the prior year to $685.3 million in the fiscal second quar-
ter, while company operating income rose 8.4% to $140
million.
Scholastic affirmed its fiscal 2012 revenue guidance of
approximately $1.9 billion, in line with fiscal 2011. Based
in year-to-date capital management, Scholastic expects
free cash flow will exceed $100 million, the high end of
the company’s previous guidance.
Per the normal seasonality and selling cycle of the edu-
cation technology segment, Scholastic expects service
revenues to be higher in the second half of the fiscal year,
reducing margins for that business unit.
“We’re pretty positive about funding for education,”
Robinson said. “I know we’re going to find the money to

Scholastic, Q2 & Six-Month Financial Results, FY2012 vs. FY2011

(Period ended Nov. 30; $ in millions)

Q2 FY2012 Q2 FY2011 % Chg. 6M FY2012 6M FY2011 % Chg.

Company Revenue $685.3 $667.9 2.6% $1,003.3 $958.3 4.7%
Educ. Tech. & Serv. $65.4 $49.1 33.2% $162.0 $131.2 23.5%
Operating Income $140.0 $129.1 8.4% $106.8 $82.8 29.0%
Operating Margin 20.4% 19.3% 1.1 10.6% 8.6% 2.0
Educ. Tech. O.P. $14.6 $3.4 329.4% $53.4 $33.6 58.9%
Operating Margin 22.3% 6.9% 15.4 40.0% 25.6% 14.4

Source: Scholastic Inc. financial report

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Electronic Education Report
continue investment despite the ups and downs of the
political scene.”
Mayer agreed, noting that Scholastic’s focus on interven-
tion puts the company in a good position to tap federal
funding.
“Our message to our sales force is that there’s money in
the schools; there’s no question about it,” Mayer said.
“There’s funding to support children in need and we need
to get an increased share of it.”
Preparing for Opportunities in Asia
Looking to the future, Scholastic is building an educa-
tional publishing operation in Singapore. There, a team
will develop print and technology-based curriculum pro-
grams with a focus on English language learning and math
to sell throughout Asia and in other global markets.
Robinson said the Singapore investment is relatively
small, with the first results to have an impact in the next
fiscal year.
“There’s tremendous growth in education in Asia,”
Robinson said. “We’ve been adapting our own U.S. and
U.K.-based material there, but there’s a strong appetite
for locally produced, locally conceived, Asian-relevant
material with a particular focus on math and language
arts that we see increasing.”
In January, Scholastic, through its Scholastic Education
International (Singapore) Private Ltd. subsidiary,
acquired Learners Publishing for an undisclosed sum.
Reproduction by photocopying or any other means strictly prohibited.
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 January 9, 2012
Learners is a Singapore-based publisher of supplemental
learning materials for English language learners with a
list of more than 400 titles. ■
Scantron Goes Private as M&F is Sold
Scantron Corp. (Eagan, Minn.) in December became part
of the diversified holding company MacAndrews &Forbes
(New York), which is owned by the private equity inves-
tor Ronald Perelman, when the latter business acquired
M&F Worldwide.
Scantron is one of the four units of MFW. The company
also includes Harland Clarke and Harland Financial
Solutions, which provide checks, related products and
services to financial institutions and their customers,
and Mafco Worldwide, which produces licorice-based
products.
Scantron revenue for the first nine months of 2011 was
$152.9 million, down 0.4% from the same period in 2010.
Declining revenue from traditional form products was
mostly offset by revenue from acquisitions Scantron
made in 2010 to broaden its educational business.
In 2010, Scantron acquired Spectrum K12 School
Solutions, a provider of Response-to-Intervention, stu-
dent achievement management and special education
software, and GlobalScholar, which has an instructional
management platform including student information
system, gradebook and portals. ■