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Houghton Mifflin Harcourt to Buy EdTech Unit From Scholastic

scholasticIn a move that reminds us just how big the publishing industry is outside of the Big 5, Scholastic has inked a deal to sell its educational technology unit to Houghton Mifflin Harcourt for $575 million.

The unit in question employs 800 people and was home to products such as Math 180 and Read 180. In the fiscal year ending May 2014, the unit accounted for $249 million out of Scholastic’s annual revenues of $1.8 billion (PDF).

HMH reported revenues of $1.6 billion in the 2014 calendar year (PDF). In comparison, Simon & Schuster (the smallest of what is known as the Big 5) reported $770 million in total revenue in the 2014 calendar year.

HMH Houghton-Mifflin-HarcourtAssuming the deal passed muster at the FTC, it is expected to close this quarter. HMH expects the purchase will result in savings of $10 million to $20 million, while Scholastic stated in the press release that they would be reinvesting the proceeds in their other units.

In today’s news, a major educational and trade publisher bought an edtech unit from a major academic and children’s publisher at a time when the trade ebook market is relatively calm – but the market for digital curricula is in flux.

Do you know all those Chromebooks being used in the classroom? Someone has to provide the content used on them, and that is why I find this deal very interesting.

If HMH plays their cards right then this investment could be worth two or three times as much just a few years from now.

On the other hand, Publishers Lunch noted that the unit reported revenues of $175 million in the first 9 months of Scholastic’s current fiscal year. That is a small decline from last year’s revenues ($233 vs $249 million), which suggests that Scholastic thinks there are better places to invest its resources than building up this unit.

I don’t know which bet will prove correct but this is a deal that bears watching.

image by kjarrett

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