By Derek Newton
Reposted from Forbes, with permission
A nine-figure acquisition is probably big news in any market. In education, is quite nearly seismic.
As such, there’s little question that the deal announced this week for the public company Instructure (NYSE: INST) to acquire Parchment, will reverberate. The published price tag for the deal is approximately $795 million. That’s about sixteen times earnings, according to the press release.
Instructure makes the market-leading learning management system (LMS) Canvas and has a market cap of more than $3.5 billion. In an interview with Instructure CEO Steve Daly from the end of July, he said that half of all college students and one-third of all K-12 districts use Canvas.
Parchment is the market leader in digital education records – a kind of digital vault for storing and sharing transcripts, diplomas, and other credentials. It says it has exchanged more than 165 million credentials.
If you’re not familiar with LMS, they are the digital classroom – both front and back of house. An LMS can deliver and receive student assignments, conduct exams, host video or other formats of education or teaching content. It can facilitate teacher planning, host and share grades and learning insights. It’s only a slight exaggeration to say that there isn’t a classroom in the country that does not use an LMS.
On the page, bringing Parchment into the Instructure/Canvas tent is a big financial move as Instructure says its new acquisition is expected to contribute more than $100 million in revenue next year alone.
But for what Instructure is and where it seems to be going, the Parchment addition is even more significant. What it means for the future of the education marketplace is just as important.
“With the combination of Parchment and the Instructure Learning Platform, Instructure can provide a verifiable, comprehensive digital passport that evidences and verifies achievement and outcomes for all learners. The transaction will extend Instructure’s market-leading teaching and learning platform with Parchment’s credential platform providing evidence of learning,” said Daly.
It’s the digital passport idea that holds the most promise for Instructure and for education. That’s because, as education spread into digital frontiers, there were immediately thousands of different ways to designate skill attainment or content mastery. Everyone wanted digital badges to designate course or program completion, but no one could agree on a standard metric or meaning. Did a badge equal a Master’s degree? Or having watched a TED talk? And who was giving these badges out anyway?
Comparatively, the standard college education works because it is easy to understand what a bachelor’s degree means. But transferring any meaning of attainment to an online badge in logistics or sales – or even verifying that it was legitimate in the first place – was another story altogether. Online education credentials were, and in many ways still are, the Wild West.
Many people and institutions and organizations recognized this glaring weakness and tried to fix it. Where they largely failed, Parchment largely succeeded. Not entirely. But well and thoughtfully. Parchment has become the trusted partner of quality in education credential storage, verification and sharing.
“Additionally, Parchment provides solutions that make it easy to share courses across systems, ensure students receive transfer credit, and facilitate dual enrollment. Adding these capabilities opens significant growth opportunities in several categories,” Daly said.
All that is true, no question. But it’s his reference to opening significant growth opportunities that should catch your ear.
That’s because the real signal in this education mega-deal is consolidation in the education service market and the continued strengthening of mega-providers. Increasingly, stand-alone companies that deliver specific supports or services to education institutions and can develop a customer base are being acquired, folded into existing large platforms.
The pattern is not unique to education. It’s pretty common across all markets. But it is a newer phenomenon in education, where the traditions have orbited around ideas such as local control, teacher authority in their own classroom and, occasionally, outright intransigence. As more and more education mega-companies move to become one-stop service providers, the we-do-it-all nameplate, the inevitable frictions and growing pains promise to be fascinating. If you’re an observer.
But no matter. There is absolutely no debate that the education marketplace is moving in the mega-player, mega-provider direction. Education has a few multi-billion dollar public companies now. And most of them continue to grow and acquire. Intentionally and relentlessly. If it was not clear before, a $785 million acquisition deal should underline the idea.
In this emerging reality, Instructure has been among the most active and assertive players – positioning itself well to meet nearly any conceivable need in and across the education landscape. The deal will get the headline, as it should. But the trend should get your attention.