Cambium Learning (ABCD) – Expected Sale – 20% Upside

Current Price – $11.6

Merger Consideration – $12-$14

Upside – 5%-20%

Expiration Date – TBD

 

Cambium Learning Group appears to be in the final stages of being sold and expected acquisition price is in the range of $12-$14 per share. The strategic review process is ongoing since May 2018 and the latest rumors indicate that there are a few interested parties in the final stages of negotiations – thus any announcement might be imminent.

Cambium is controlled (69%) by private equity fund VSS, which is clearly incentivsed not only to sell but also to squeeze out good a price. VSS acquired Cambium in 2007 for $300m+ and then brought it public through the merger with Voyager in 2009. Since then the company faced turbulent 10 years with legacy print business declining and new digital initiatives failing to pick up fast enough. The turning point was in 2014-2015 and by now the business has almost fully shifted towards digital education subscription services (i.e. EdTech SaaS). Due to already long holding period and business having finally turned around VSS is likely an eager seller.

Strategic review was announced in May 2018 together with Q1 results. Interestingly, this also caused postponement of the planned VKidz acquisition (also partially owned by VSS), prompting speculations that the review was pcaused by approach of potential buyer. No further info was shared by management and investors had to rely on rumors from Dealreporter.

July 24th:

Cambium Learning took first round bids Dealreporter says

Cambium Learning, which announced in May that it was conducting a strategic review, recently collected first-round bids as it looks for a buyer, three sources briefed on the matter told Dealreporter, according to contacts. One of the sources said he is skeptical suitors will be willing to offer much more of a premium given the stock’s advance since the announcement of the review, the report added, according to contacts.

October 5th:

Cambium Learning gathering final bids in sale process, Dealreporter says

Cambium Learning, which is exploring a sale, is gathering final bids this month and “at least one strategic remains in the mix” along with a “large group of financial sponsors,” said Dealreporter, according to contacts.

If these rumors can be relied upon, then potentially there are multiple bidders interested in the company, which should help elevate the acquisition price.

 

Background and Valuation

For a detailed background on the company and events leading to current situation I highly recommend reading through this VIC article and the message thread. Cambium is an education company that sells learning materials and solutions to schools and teachers nationwide (for brief overview of services and products provided see here). Majority (80%) of revenue is currently generated through online subscriptions. It’s star businesses – Learning A-Z and ExploreLearning – are both 100% digital subscription services. Both have grown bookings and revenues at 10%-25% rate over the last few years and are highly profitable (net income margin 50%+ at Learning A-Z and 30%+ at ExploreLearning before corporate overhead). The legacy part of the company (Voyager Sopris) has gradually declining revenues, but is still profitable before corporate overhead.

Learning A-Z and ExploreLearning combined did $107m in revenues and $116m in bookings over the last 12 months. At current EV, Cambium trades at c. 5x revenue and booking multiples of these two segments alone, ignoring any residual value of Voyager Sopris. This valuation is quite in line with other listed EdTech companies (especially taking into account differences/similarities in profitability and growth) as well as previous acquisition multiples referenced in the VIC write-up. The latest large transaction was presumably valued at 9x revenue multiple (albeit for four times larger company than Cambium). Ignoring high revenue multiples and looking at the bottom line the combined company sells for c. 12x operating cashflow (2017 figure), which seems low for a growing SaaS business.

I do not have the exact price at which Cambium is likely to be acquired (comments on VIC back in May referenced $12-$14 range), but the point I am trying to make here is that Cambium’s valuation does not seem to be stretched and acquisition is likely to happen at a premium to the current market prices.

Worth noting that business is very seasonal with majority of the bookings taking place in Q3 and Q4 (start of the new school year).