The parent company of the University of Phoenix has acquired Carnegie Learning Inc., a Pittsburgh-based education-software company, in a cash deal worth $96.5 million.
Phoenix-based Apollo Group Inc. has agreed to buy 100 percent of the stock for Carnegie Learning for $75 million and will pay Carnegie Mellon University $21.5 million over 10 years for related technology.
The transaction is expected to be completed this fall, said Barry Malkin, an Apollo vice president who oversees corporate development.
Carnegie Learning provides mathematics-education software used by 600,000 students in 3,000 schools around the U.S.
Carnegie Learning was spun off from Carnegie Mellon University in 1998.
Apollo Group is Arizona’s sixth-largest employer. Apollo’s University of Phoenix is the largest private for-profit school in the U.S., with nearly 398,400 students.
Apollo plans to keep Carnegie Learning as a distinct brand under its Apollo Global umbrella, and in the future Apollo may hire to expand Carnegie Learning. The software company’s headquarters will stay in Pittsburgh.
Carnegie Learning’s products are used by middle-school to college students, Malkin said.
The acquisition helps diversify Apollo’s core business, and Carnegie’s software could help prevent dropouts at the University of Phoenix, Malkin added.
“The objective of the acquisition is to ultimately improve our retention rates around mathematics,” he said. “Many students struggle with mathematics, and the technology and products that Carnegie Learning has is a solution for a lot of students.”
While the cash deal may not have a huge impact on Apollo’s bottom line – the company reported having $1.4 billion in cash as of May 31 – it may reap other benefits.
Over the years, the University of Phoenix and other for-profit schools have been criticized for having high dropout rates compared with traditional schools, said Trace Urdan, an analyst for Wunderlich Securities Inc. The University of Phoenix has argued that it has many students in need of remedial help in core subjects, he added.
While Carnegie is known as a “premier” K-12 software provider, Apollo wants to show that it’s “walking the walk” in improving student performance, Urdan said.
Early investors in the for-profit education sector would sink their money into the fastest-growing companies, Urdan said.
In the future, he predicted, investors may pay a premium for education stocks that provide value for students.
“We are heading into a new era in these stocks,” Urdan said, “where the outcome measures will determine their value.”