Activist Investor Calls for Sale of Software Maker Instructure

(Bloomberg) -- Activist investor Praesidium Investment Management Co. has joined a push for education software company Instructure Inc. to explore a sale.

The New York-based hedge fund has identified dozens of strategic and private equity buyers that might be interested in the company's learning management platform, Canvas, said Kevin Oram, Praesidium's co-founder and managing partner. Canvas, which owns about 38% of the market now, could be worth $2.5 billion, he said.

“It's extremely valuable and potentially very profitable,” Oram said Wednesday in an interview. He said Praesidium has been discussing its views with Instructure's management team.

Salt Lake City-based Instructure's shares have rallied almost 23% this year, giving it a market value of about $1.73 billion. A representative for the company didn't respond to requests for comment.

Selling Bridge

Oram said he believes other potential buyers would be interested in its money-losing employee development business called Bridge, as well as the company as a whole. Selling the Bridge unit would unlock the value of the Canvas business, he said.

He estimated that Bridge has about $25 million in revenue but loses about $60 million. Still, large human capital management software companies might still be interested in it for its technology, Oram said.

Praesidium estimates the Canvas division could achieve earnings before interest, taxes, depreciation and amortization margins of 40%.

Retention Rates

“The platform is extremely powerful because it has such a dominate market share,” Oram said. “We think it has customer retention rates of close to 100%. I don't think they've ever lost a customer. That's really valuable.”

Activist investor Sachem Head Capital Management has also built a position in the company and is pushing for a sale, according to people familiar with the matter.

Sachem Head also pushes for sale of 2U education company

Instructure said last week on its third-quarter earnings call that it was moving forward with separating the two businesses and had begun a strategic review of Bridge. It said it will give more details at its investor day Dec. 3.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Michael Hytha, Matthew Monks

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