How potential for ‘digital transformation’ is a main reason for Platinum Equity’s $4.5 billion acquisition of McGraw Hill

McGraw Hill has historically been known as a textbook publisher.

But in a nod to the entrenched role technology plays in everyday lives, the learning company is seeing its digital business grow exponentially, with 80 percent of the company’s business in higher education delivered digitally.

That is among the reasons Platinum Equity has acquired the venerable company from Apollo.

Founded in 1888, McGraw Hill provides outcome-focused learning solutions to millions of students globally, delivering both curated content and digital learning tools and platforms to the classrooms of approximately 250,000 higher education instructors, and 13,000 pre-kindergarten through 12th grade school districts. Products are distributed in more than 100 countries across the Americas, Asia-Pacific, Europe, India and the Middle East.

“We believe in McGraw Hill’s mission to create a brighter future for learners of all ages around the world,” Platinum Equity CEO Tom Gores said when the definitive agreement was announced. “The pandemic has been especially disruptive to education, and investing in innovative solutions, and digital learning tools in particular, is more important than ever. We are excited about the opportunity to put our operational and financial resources to work on behalf of students, teachers and administrators everywhere.”

Managing Director and deal lead Luke Myers spoke with Platinum Equity recently to further explain the reasoning behind the $4.5 billion acquisition.

(Edited for clarity and length)

Platinum: What are the future opportunities for McGraw Hill?

Myers: Future growth will be driven primarily by the ongoing shift to digital that is taking place across the education landscape. That means taking textbooks and other aspects of the curriculum that were previously delivered in static print format and delivering that content digitally. The content no longer has to be static; it can be interactive and engaging for students. Ongoing assessments can be built into these digital programs that allow teachers and instructors to know exactly how their students are progressing along their learning paths. So, this shift to digital is transforming education. McGraw Hill’s content and strategic leadership leaves the company well-positioned to benefit from this trend.

Platinum: Did the pandemic accelerate the development of this technology?

Myers: Yes, although I think it’s less about the technology’s development and more about how it’s being deployed in classrooms. We’ve tracked the education space for a while, and the technology has been around for several years. With the pandemic moving everything online, teachers and administrators were forced to get creative in order to ensure education continued, which meant utilizing technology in ways that some educators have not experienced. This provided firsthand exposure to how powerful the digital learning tools are. We believe these digital solutions will continue and accelerate in classrooms. Education was going to get there eventually, in terms of technology being implemented in classrooms, but the pandemic certainly pulled that forward by a number of years.

Platinum: Is there anything else about this investment that is attractive?

Myers: We think this is a great platform for additional M&A. Distribution is the key to success in education, and McGraw’s distribution capabilities means there’s a lot we can do with potential acquisitions. In the K-12 segment, in particular, there are many digital-first companies that could benefit from McGraw’s scale and distribution, which in turn will benefit millions of students here in the U.S. The international potential with this business is very large as well; McGraw has done a good job expanding internationally, but there’s a lot more to be done.

Platinum: In addition to McGraw Hill, the firm has also recently acquired Club Car, a golf cart manufacturer, and SVP-Singer, a sewing machine company. Different companies, but all familiar, public-facing brands. Is something happening in the market or is this just coincidence?

Myers: It’s more coincidence, but I think as we grow in scale, the companies we’re looking at are larger and more well-known. Relative to where we started, Platinum is a larger private equity firm that has a lot more capital to deploy. We have continued to move upmarket by acquiring larger companies, which are more likely to be well-known brands because of their size.

Platinum: McGraw Hill joins Solenis, Ingram Micro and Urbaser as the largest deals in firm history. All have occurred recently. Another coincidence?

Myers: Some of it has to do with the amount of activity we’re seeing in the market right now. Along with the scale factor that I mentioned before, our team has been firing on all cylinders. What’s common about those three deals is the conviction we have in their eventual success, which is predicated on the opportunity to bring our operational capabilities to bear in ways that will unlock value at these companies. It’s what has differentiated Platinum in the market for over 20 years now, and to bring that capability to companies at the scale of the ones we’re talking about is exciting.

Platinum: Speaking of operations, are there any past investments that will inform Platinum’s approach to the McGraw Hill investment from an ops standpoint?

Myers: Cision is a good example. Cision was going through a digital transformation that is similar to what McGraw is currently experiencing. Every company is different, which means that our approaches are different, but there are similarities between Cision and McGraw with their respective transitions. For example, we thought that M&A — which we’ve done and will continue to do — would help accelerate the digital transformation at Cision. And we see the same opportunity at McGraw. Again, every company is different, but M&A is something that will help to create value at McGraw, and some of that perspective has been informed by our experience with Cision.

(Myers was part of the team that led Platinum’s $2.7 billion acquisition of Cision in early 2020).

Platinum: McGraw Hill has received criticism over pricing. Is that a downside?

Myers: When you look at what’s happened to pricing over time, it has become cheaper for students. And generally speaking, digital solutions are going to be cheaper in the aggregate. Instead of paying for physical textbooks every year or semester, students will be paying for a single license that provides them access to an entire curriculum for multiple classes. That’s not taking into account the additional value that teachers and students are benefitting from given the digital format.

Platinum: Anything you would like to add?

Myers: We’re thrilled to be partnering with the McGraw Hill management team. The organic growth that we expect to take place from the digital transformation is very compelling. Our operational improvement initiatives, along with the additional M&A opportunity that we’ve discussed, will allow the company to continue on its path to becoming the leader in digital education. And we’re going to drive that digital transformation.