Happy Monday! It’s Isabel O’Brien here with Value Add, a free weekly newsletter from Privitas covering the latest private equity operations news. Here’s what you need to know this week.

Done Deal

One for the books. KKR announced its intentions to take Instructure private in July of this year. Last week, that deal finally became a reality.

The firm paid $23.60 per share in an all-cash transaction, valuing Instructure at $4.8 billion and delisting it from the New York Stock Exchange. Dragoneer has joined as a participating investor.  

Instructure owns Canvas, an online learning platform, and Mastery Connect, an online assessment platform. These two products are used in both universities, K-12 classrooms, and even professional education settings. It will complement KKR’s current assets in the edtech space, which include:

• Teaching Strategies, an American early education-focused online teaching platform that KKR bought from Summit Partners in 2021.
• Education Perfect, a New Zealand-based learning and analytics platform for grades K-12. KKR also bought its majority stake in 2021 in a deal valued at around $400 million.

A history lesson. One key asset that KKR has exited in the sector is Weld North, an edtech investment company that manages brands including Edgenuity, Generation Ready, and Imagine Learning. KKR established Weld North alongside Jonathan Grayer, former chairman and CEO of Kaplan, in 2010 and exited it in 2018, selling it to Silver Lake for an undisclosed sum.

Weld North’s growth came mainly through M&A (acquiring Education 2020, Learning House, Voxy, Imagine Learning, Truenorthlogic, and Performance Matters under KKR’s leadership) and by investing in expertise (hiring media and technology executives Jonathan Grayer, Richard Sarnoff, and Adam J. Klaber).

M&A is already a strategy that Instructure has implemented, acquiring Mastery Connect, Certica, EesySoft, and Parchment between 2019 and 2024. It has also created new products without M&A, launching Canvas Catalog and Canvas Studio (add-ons to its main product, Canvas) and Bridge during the 2010s. 

Instructure claims it is “committed to broadening its platform and delivering $1 billion in revenue by 2028” in a press release associated with the deal – however, it is uncertain just which value creation strategies KKR plans to implement to get it there. KKR declined to comment. 

Portco News

When it comes to PE portcos, there were some full and partial exits last week, as well as some exits-to-be… Here are a few:

• Insight Partners, Blackstone, and Clearlake – the joint owners of Diligent, a US corporate governance software maker – are weighing a sale of the asset at $7 billion (including debt). LSEG and S&P Global have been named as potential strategic acquirers, though a sponsor-to-sponsor exit is also a possibility. 
• Sedgwick, a claims management technology firm, closed a $1 billion minority stake sale to Atlas Partners. Currently, The Carlyle Group is the largest shareholder, with Stone Point, CDPQ, and Onex retaining stakes, too. 
• Apollo Global Management’s gastroenterology practice management portco, GI Alliance, is selling a majority stake to Cardinal Health. The deal implies an enterprise value of $3.9 billion. 

Meanwhile, portco M&A was in full swing:

• FourPoint Resources, owned by Quantum Capital and Kayne Anderson, has acquired Ovintiv’s Uinta basin oil assets for $2 billion cash. 
• New Mountain Capital’s Citrin Cooperman, an accounting advisory firm, bought two competitors for undisclosed amounts: Clearview Group and Signature Analytics. These are the seventh and eighth add-ons for Citrin this year. 
• CD&R-backed Cloudera is buying Octopai, an Israeli startup that uses AI to manage metadata. Financial terms of the deal were not disclosed. 
• Orisha, a French software provider owned by TA Associates and Francisco Partners, will acquire Wolfpack DCS, a Dutch commerce technology company, for an undisclosed amount.
• KKR’s Accountor Software, a payroll and HR outsourcing tool, will expand its Nordics presence via an acquisition of 24SevenOffice’s enterprise resource planning software unit. The sale implies an enterprise value of SEK 2.4 billion ($220 million).  

Hot Take

One-track mind. Last week I turned my radiator on for the first time this season… in mid-November. In New York City. It’s been a warm autumn. 

Between high temperatures and high-stakes headlines from COP 29, I’ve been thinking a lot about climate change and ESG. Throw in some interesting cabinet picks for the incoming administration… Well, let’s just say it's been hard to think of anything else.

Make no mistake – the anti-ESG movement has been gathering steam for years. However, the impending Trump administration would make now the perfect time for sponsors to walk back on their ESG commitments – but that doesn’t mean that they should.

The ESG disclosure rules the SEC has been trying to pass are likely dead on inauguration day, while the Department of Labor’s pro-ESG returns rule for pension funds faces a near-impossible battle to implementation. These structural shifts will not only make it easier for environmentally unfriendly investors to hide anti-ESG investments, but it will also create the perfect cop-out for managers who didn’t want to put the work in, anyways.  

More planet, please. We’re at a critical juncture when it comes to fighting climate change – the Paris goals have likely been missed, and we’re on track to reach 2.7 degrees Celsius (4.9 degrees Fahrenheit) warming by 2100. The private sector needs to step up – not only to fill in the massive funding gap – but also to decarbonize its own portfolio. 

Do you think you could cut your portcos’ emissions -42% by 2030? Because that’s what the entire economy needs to do to get on track to meet the Paris goals. 

Of course, asset managers are fiduciaries. They can’t forgo alpha for the sake of hitting a decarbonization goal that, in all likelihood, the rest of the economy won’t hit. But they also shouldn’t take advantage of this political moment to invest more in carbon-heavy industries – even if there will be short-term upside when it comes to returns. 

Abandoning ESG would be the easy thing to do right now, but not the right thing. Even if it's politically unpopular, it is key to a portfolio’s health and longevity (as well as your grandkids’). 

There are many value-creation tactics that are aligned with ESG that investors can continue to implement, even if they have to give them a new name. Efficiency isn’t political. Cleanliness is never controversial. Let’s not forget that over the next four years.

More from Privitas

• Exits Are Back, But Different (Read)
• Sponsor-to-Sponsor Exits 2024 (Read)
• The Unexpected Impact of Family Offices on PE Portco Operations (Read)
• Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
• Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)

That’s all for this week – thanks for reading. Have questions? Email isabel.obrien@privitas.com