Archipelago Stock Surging in Advance of Merger

Education stocks are suffering from a general malaise as is to be expected in a down market, but defying this trend is Archipelago, the only education stock to be trading at anything close to its 52 week high.

Archipelago is a provider of education software-as-a-service and uses a subscription model. Archipelago provides education tools to nearly 15 million students at almost 40 thousand educational institutions across the English-speaking world. Part of the stock’s resilient position is undoubtedly it’s anticipated acquisition by PLATO in the second quarter of 2012.

This marks a 23% premium to the Archipelago closing price of $9.04 on March 2, 2012, and a 17% premium to Archipelago’s “weighted average trading price for the last twelve months,” according to information released by the two companies. Chicago-based mid-market private equity firm Thoma Bravo, LLC, which owns Plato and has almost $4 billion in other assets under management, backed the generous deal

PLATO Learning, Inc. is already considered a leading provider of comprehensive education technology solutions. There is some speculation however that the merger by itself doesn’t explain all of the resurgence in Archipelago’s stock and one should look at the implications to get a full picture.

A spokesperson for one publicly traded education stock said, “it is basic supply and demand. There’s going to be increasing consolidation in the education space this year, as a few leading players acquire companies  that are showing outsized profit in a difficult regulatory and cost environment.” Confirming this logic, Archipelago’s own records show the company generated $19.5 million in profit in the fourth quarter of 2011, a 14% increase “compared with the same period a year ago.” Over the entire 2011, Archipelago grew by 24.9%.

The healthy positions of supplementary education content providers such as Archipelago can be linked to the stealth abandonment of No Child Left Behind by the Obama administration as Frank Ganis of the Gilfus Education think tank explains,

“With increasing NCLB waivers and flexibility, Archipelago’s products and services may be extremely well positioned for growth.”