Blackboard Replaces CEO Jay Bhatt: What happened

Just over four years since Providence Equity Partners acquired Blackboard and three years after they brought in Jay Bhatt to replace co-founder Michael Chasen, the company announced another change in CEO. Blackboard has removed Jay Bhatt and replaced him with Bill Ballhaus. The official reason from the announcement:

Today, we are fortunate to be joined by a great leader – our new CEO Bill Ballhaus. Bill’s philosophy is directly in line with ours and his skill set is going to help us reach new heights. While this is certainly a change for Blackboard, rest assured that the heart of our mission and strategy will remain the same. [snip]

So we have defined our strategy and now, with Bill joining the company, we’ll continue to execute against it. Bill has accomplished much over his career and his operational expertise has led various businesses to great success. He and I share a fundamental belief that if you make your first priority taking care of your customers, the business results will follow. So, under his leadership Blackboard will continue our focus on doing just that. We will deliver next generation teaching and learning capabilities to the market, continue our international growth, and improve even further the way we serve our customers and strive to exceed their expectations. Bill is uniquely positioned to help us execute against these priorities, and with him we’ll achieve significant advances for our customers and for Blackboard.

While the official messaging is ‘full steam ahead’, to me this is a straightforward story that we have already been covering at e-Literate. In a nutshell, the attempted sale of Blackboard this year has failed, and the company has stalled in its turnaround attempts.

In Summer 2015 we learned from Reuters that Providence was actively putting Blackboard up for sale, a story we confirmed in August. At December’s meeting with journalists (somehow the e-Literate invitation was lost somewhere), Jay Bhatt seemed unprepared for a question about this sale as covered by Inside Higher Ed.

“Look, we’re private equity owned,” Bhatt said, adding that Blackboard’s current owners, Providence Equity Partners, are “really sympathetic” to the company’s cause. “But they are a private-equity investor, and they are looking for a return. Are we up for sale? Not necessarily. Are we always up for sale? Probably. Just like every other company in the public market is up for sale. Every time somebody buys a share of stock, they’re up for sale.” [snip]

“We will be sold at some point,” Bhatt said. “We’ll either be sold to the public market and be a public company like we were for 10 years, or we’ll be sold to another private investor. Something will happen so our investors can monetize, but it won’t change the strategy or the focus of our company.”

Beyond the muddled messaging, Bhatt’s answer strongly indicates that no buyer is really interested and that the attempted sale is not happening. The change in CEO is an additional confirmation to me, at least, that the attempts to sell Blackboard were unsuccessful and have been withdrawn.

The new management team brought on three years ago understood the need to make some major fixes to Blackboard, including re-architecting the core Learn product line, removing the company silos, cutting costs, and finding organic growth opportunities.

Based on private equity ownership and its current market position, however, Blackboard is caught between the need to invest and complete a product re-architecture that is highly complex and aggressive, and the financial requirements of highly-leveraged private equity ownership. The need to invest and the need to cut costs.

The results to date have been mixed.

• We have described the efforts to redesign Learn Ultra – moving the core product line into a multitenant cloud architecture and rethinking (not just tweaking) the user experience. Blackboard is now at least a year late bringing this product redesign to market while putting out confusing messaging on what Ultra is and when it will be ready. The company is implementing new user experience designs for Collaborate and other products, but none of these matter that much without the core LMS, Learn. Recently the University of Phoenix parent company confirmed through e-Literate that they are replacing their homegrown learning platform with Blackboard Learn Ultra, scheduled for Summer 2016. This represents the biggest win for the Learn LMS in several years.
• Blackboard has been quite active in removing company silos. Product development and support in particular have been reorganized to centralized teams, and sales of products have been grouped into bundles. In the fall, however, Blackboard reversed some of these changes and moved partially back into more independent product lines.
• The company has held a wave of layoffs – several per year – since the Providence acquisition, and they have moved hundreds of product development jobs overseas to their Shanghai office. The cuts have led Blackboard to move its headquarters back to the early 2000s location, Blackboard recently signed a lease that will trim its corporate headquarters by 37%. Beyond layoffs, many key management and staff have been leaving Blackboard over the past year.
• The only area seeing significant organic growth – not just as direct result of corporate acquisition – has been Blackboard’s international operations for both Learn and their Moodle Solutions. K-12 revenues have even dropped, and higher ed revenues are stagnant.

When Moody’s updated their ratings of Blackboard’s $1.3 billion in publicly-held debt in Spring 2015, we got confirmation of the financial status of the company. Revenues are stagnating, K-12 is even dropping, earnings have marginally increased, and debt ratios (debt-to-earnings in particular) are too high and could trigger a ratings downgrade. Blackboard is just not hitting their numbers.

We will look more deeply at the new CEO, Bill Ballhaus, and what his background might indicated for Blackboard’s future. For now, I’ll just note that Ballhaus was CEO of SRA International, a government IT services and solutions company acquired by Providence Equity Partners in 2011. After a corporate turnaround leading to increased revenue for the first time in 2014, SRA filed to go public in Summer 2015 but subsequently sold to CRC. Clearly Providence knows Ballhaus and has specifically brought him into Blackboard for a new attempt at turning around the ed tech company. Also, note that Ballhaus was also appointed Chairman of the Board.

Keep watching e-Literate for more coverage on this developing story.