McGraw-Hill Education Sells to Private Equity To “Go Faster”

The McGraw-Hill Companies recently announced its decision to sell its education business to Apollo Global Management, a private equity firm that has a history of  investing in educational businesses, for a price of $2.5 billion. The remaining publicly traded company would then change its name to McGraw-Hill Financial and focus strictly on its financial and ratings services. The plans for the sale was first announced in September 2011 which has already resulted in in the company seeing an increase in overall shares by approximately 34%, a significantly higher value than was predicted by the S&P 500 index. How and why would a company like McGraw-Hill which has traditionally shown growth every year, has maintained a solid stock price, and pays dividends regularly, decide to just sell off its education business?

In reviewing articles written by several of the major finance publications, the sale is described to only help the company (or should I say companies) in the long run.  As with any company, the business strategy should be reviewed on a regular basis, making sure that the short term and long term goals can still be met. In the case of McGraw-Hill, the board of directors has been monitoring the education industry as well as the finance industry and has recently seen that state budget cuts across the country have resulted in a decline in sales for seven of the last eight quarters. However, the board also knows that the education business is in a transition period
from a print focus to digital focus and has been trying to ensure it has the capital to successfully make this transition to be profitable. Another very important part of the decision was based on shareholder feedback. Many were complaining that the returns were being impeded by the fact that McGraw-Hill was two completely unrelated businesses. As a result, the decision was made to split the two businesses into two, selling the education business to a private equity firm. In doing so, the financial business increases shareholder value and balance sheet flexibility, and the education business becomes more agile in its quest to become a completely digital educational services business. In other words, the education business gains speed, which means products and services can make it to market much more quickly in order to drive growth and market share.

Based on basic business strategy theory, the most successful businesses always keep their shareholders, customers, and employees happy. The decision seems to have addressed the shareholders, but what about the customers and employees?  How would you evaluate McGraw-Hill’s decision to split their businesses?   Should there be any concern for the education business now that it’s owned by a private equity firm?



McGraw-Hill to Sell Education Business to Apollo for $2.5 Billion;MHP&ticker=MHP


McGraw-Hill Sells Education Unit To Apollo: Bellwether For Educational Publishing?