Bank of America Merrill Lynch Drops Rating On Blackboard

Bank of America Merrill Lynch is dropping its rating on shares of Blackboard BBBB after it agreed to be acquired for $45 per share by Providence Equity Partners. In a note to clients, Bank of America Merrill Lynch writes, "Blackboard announced an agreement to be acquired by a group led by Providence Equity Partners in an all cash transaction valued at $45/share in cash ($1.64bn cash plus $130mn in net debt), expected to close in 4Q:11. This equates to ~2.9x EV/Rev, ~11.6x EV/EBITDA and ~16x EV/FCF on our C12 estimates. Although lower than the 3.6-3.8x EV/Rev multiples paid for software acquisitions in the past for companies with similar growth rates, the valuation is not atypical for a private equity buyout vs. a strategic buyer. That said, Providence has a track record of investing in the education industry with existing stakes in companies like Archipelago Learning, Ascend Learning, etc. and we believe it should be able to harvest synergies by adding Blackboard to this group. The $45 share price, while a 21% premium to BBBB's closing price on 04/18 (prior to BBBB's announcement of evaluating strategic alternatives), bore out a concern when the initial bid news broke that the deal might get done below the initial $48 spike in the shares, leading to, in our view, an unattractive risk reward." Shares of BBBB are down 1 cent to $44.16 in early Tuesday trade.