2i’s Deal of the Week: ANGEL(s) Can Be Bought
Blackboard’s acquisition of ANGEL Learning further solidifies its commanding position as the leading Learning Management System (LMS) provider in the market. For the roughly $95M cash and stock that Blackboard (NASDAQ: BBBB – $29.16) paid for ANGEL, they acquired a rapidly growing, well-regarded competitor. But the market does not seem to like the deal – shares are off nearly 12% since the announcement. What is the motivation for this acquisition?
Clearly gaining greater market share through an in-market acquisition is good for BBBB. Yet the deal does not significantly advance its market penetration. With its 2005 acquisition of WebCT, BBBB nearly doubled its market position to its current dominant 80%+ of the higher education market. The addition of ANGEL, purported to be less than 10% of BBBB’s size (ANGEL is a private company and does not have to divulge its financials), does not appear to add significantly to BBBB’s market position. If this reason is the primary motivator for the deal, the acquisition price seems high.
BBBB, however, has a long history of astute combinations. Acquiring ANGEL, at least in the near term, seems defensively shrewd. BBBB’s protracted and increasingly nasty legal fight with its other chief competitor, Canadian-based Desire2Learn (D2L), anecdotally appears to be hurting both companies. Education, by definition, is collegial place. Many educators consider the LMS to be public domain and perceive BBBB’s 2006 receipt of patents on parts of the process to be invalid based on prior art. BBBB’s nearly immediate suit against D2L for patent infringement stoked the worst fears of many (fight publicly well documented, particularly in the blogosphere). Such hard-knuckle tactics are unseemly and distasteful, at best, to educators.
ANGEL, not being an immediate party to the proceedings, appeared to increasing numbers of LMS users to be a safe harbor. Moreover, ANGEL’s product offered a significant advantage to its clients – flexibility. Higher education covets its academic freedom. BBBB does not accommodate this goal. Purists like open source models like Moodle and Sakai. Yet these options require technical resources to properly integrate – resources often beyond the reach of many in academia. ANGEL offers a solution that is scalable and affordably maintained, yet flexible enough for its more sophisticated clients that it can be customized. Added to this flexibility is an excellent reputation for customer service.
With all of these stars aligned, ANGEL was soaring. BBBB was wise to protect its position by eliminating a serious competitor and narrowing the viable field to the litigants and the open source models. The company also gets a strong software package that management indicates it intends to update and support. BBBB’s track record with its acquisitions of WebCT and highly-regarded Prometheus suggest otherwise for the longer term.
Significantly, Blackboard also bolsters its K-12 offering through the ANGEL acquisition. This facet of the deal may prove highly beneficial to the company. BBBB has struggled for years to crack the code for this market, with LMS being slower to permeate the market and the rigid BBBB model seeming better suited for the post secondary market. ANGEL seems to enjoy more success in this market. The combination might help BBBB meet the market need better, as well as blunt the spread of Moodle in this vertical.
Finally, although the discussion is likely better left to IP attorneys, we suspect that the acquisition benefits BBBB in its ongoing IP dispute with D2L. The deal eliminates a logical destination for customers trying to avoid the fight, stemming customer flight. Perhaps just as important, BBBB eliminates another litigant, assuming ultimate victory over D2L. With legal proceedings in high gear for nearly three years, Blackboard must be finding the combined costs of customer losses, legal expenses, and negative goodwill with clients to be draining. This reason alone might make the acquisition worth the price.
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