WASHINGTON, Dec. 10, 2014
/PRNewswire/ -- The Advisory Board Company ("the Advisory
Board") (NASDAQ: ABCO), a global, insight-driven technology,
research, and services provider, today announced that it has signed
a definitive agreement to acquire Royall & Company ("Royall"),
the higher education industry leader in strategic, data-driven
student engagement and enrollment management solutions. Under
the terms of the agreement, the Advisory Board will purchase Royall
for $850 million, consisting of
$750 million in cash and $100 million in Advisory Board stock.
Throughout its 35 year history, the Advisory Board has focused
on providing differentiated, scalable, renewable solutions to
transforming industries that have complex, common problems and
large, fragmented customer bases. Its founding health care
business, which includes relationships with 3,900 hospitals and
health systems through more than 50 programs, is today complemented
by a 7-program higher education portfolio serving more than 600
colleges and universities on their most critical problems.
Central to the Advisory Board's higher education growth strategy is
developing service offerings to aid members across the entire
student lifecycle: supporting students in finding and enrolling in
the right schools, receiving needed financial aid, learning
effectively, and graduating on to successful employment and
positive contributions to their communities. The addition of
Royall furthers this strategy by adding new front-end student
engagement and enrollment capabilities to the Advisory Board's
portfolio.
Headquartered in Richmond,
Virginia, Royall is the higher education industry leader in
strategic, data-driven student engagement and enrollment management
solutions, financial aid optimization, and alumni
fundraising. Royall's solutions help non-profit colleges and
universities achieve such critical institutional goals as
strengthening national reputations, broadening student enrollment,
improving overall academic profiles, and enhancing revenue.
Over its 25 year history, Royall has honed a proprietary
approach to setting institution-specific engagement and enrollment
strategy, using data-driven insights to develop effective
messaging, leveraging its tech-enabled platform across multiple
communication channels, and deploying analytics to optimize student
progress through to enrollment. This unique process delivers
its 350 college and university clients outstanding outcomes and
significant revenue enhancement through the company's highly
renewable, scalable business model.
In joining forces, the two organizations will be the industry
leader in driving value for institutions of higher education by
addressing their key strategic needs across the full student
lifecycle. The combined company will also provide members the
industry's largest data set and analytical engine around student
engagement and success, providing high visibility across the
spectrum of both college-bound students, as well as university and
college attendees.
Robert Musslewhite, Chairman and
CEO of the Advisory Board said, "Throughout our 35 year history, we
have used our unique, insight-driven model to create tremendous and
ongoing value for our member institutions and to deliver scalable
and highly recurring business performance. Our formula has
been very effective as we have expanded over the last seven years
from health care into higher education which shares many of the
health care market's key attributes. Our combination with
Royall & Company, the clear leader in providing strategic,
data-driven student engagement and enrollment solutions,
accelerates the extension of our model into higher education and
gives us a fantastic platform for growth, expansion, and member
value creation."
Mr. Musslewhite continued, "Like our health care members, our
members in higher education face myriad challenges today, and they
need our help more than ever before. They face increasing
pressure on government funding and tuition revenue, heightened
competition for students, greater scrutiny of value and outcomes,
and rising demand for transparency into performance metrics.
As such, colleges and universities must demonstrate strong
performance in attracting a diverse student body, educating them
well, and graduating them successfully into productive
employment."
Mr. Musslewhite added, "Combining our offerings with Royall's
outstanding solutions creates a one-of-a-kind resource to enable
higher education executives to apply data and analytics to both
engage and enroll the right students and help those students
graduate on time. Royall's leadership position in higher
education, its track record of delivering measurable ROI, its
exceptional and experienced staff, and its analytics-driven,
scalable business model—which translates into highly recurring
revenues and strong bottom line performance—make it a compelling
strategic and financial fit for the Advisory Board. Over
time, we also expect to realize additional value by expanding
member relationships across the portfolio and developing new
programs and technologies based on the joint assets. All in
all, this combination serves to significantly bolster our higher
education practice and generate significant value for our members
in a way very consistent with our company growth strategy and
mission."
John Nester, President and CEO of
Royall & Company said, "We are thrilled to join forces with The
Advisory Board Company in our mutual pursuit of advancing the
causes of student access and success. Together, we will leverage
our data and experience linking student behavior and outcomes to
become a one-of-a-kind, full-service provider to the nation's
colleges and universities, holistically helping to solve the
rapidly evolving strategic needs of our clients across the full
student lifecycle. Our combination, and the value it creates,
represents an important step forward for our mission-driven
partners, as well as the students they serve."
Mr. Musslewhite added, "We are tremendously excited to welcome
Royall's talented staff and excellent leadership team to the
Advisory Board. They have exceptional experience and
expertise, and their values, results-driven approach, service
ethic, and outstanding and trusted member relationships are a great
fit with our own. We are confident that we have the
infrastructure and resources in place to successfully and
seamlessly join forces with Royall, and I look forward to our
collective success."
In conclusion, Mr. Musslewhite noted, "In addition to its strong
strategic fit, this combination is financially attractive going
forward. We expect it to be accretive to our overall
financial profile, enhancing our growth, margins, cash flow, and
non-GAAP earnings per share. These dynamics give us the
flexibility to finance the transaction, reduce debt over time, and
continue investing in our growth opportunities across both health
care and higher education."
FINANCIAL HIGHLIGHTS
The Advisory Board will fund the cash component of the purchase
price with borrowings under new senior secured credit facilities,
consisting of a $725 million term
loan and an undrawn $50 million
revolving credit facility, along with approximately $65 million of cash on hand. The new credit
facilities will replace the Company's existing $150 million revolving credit facility. For
the twelve months ended September 30,
2014, adjusted EBITDA for the combined pro-forma entity was
approximately $143 million. The
Advisory Board expects leverage to be approximately 4.9x debt to
last twelve month adjusted EBITDA at closing, and anticipates rapid
deleveraging through the strong cash flow of the combined
business. The Advisory Board expects the transaction to be
approximately $0.10 accretive to
calendar 2015 non-GAAP earnings per share. J.P. Morgan and
Bank of America Merrill Lynch have provided committed debt
financing for the transaction.
Morgan Stanley is acting as financial advisor and Hogan Lovells
US LLP and Powers Pyles Sutter & Verville PC are acting as
legal advisors to the Advisory Board. Barclays and Kirkland &
Ellis LLP are advising Royall and its shareholders.
TRANSACTION TERMS AND STRUCTURE
Under the terms of the agreement, the Advisory Board will purchase
100% of the capital stock of Royall's holding company for
$850 million. In addition to
the $750 million cash consideration,
the Advisory Board will issue to the seller shares of common stock
valued at $100 million, subject to a
7.5% collar arrangement that will fix the maximum and minimum
number of shares issuable in the transaction. As a result of
the collar arrangement, the Advisory Board will issue between 2.4
million and 2.8 million shares to the seller based on the
volume-weighted average price of Advisory Board common stock during
the 15-day period preceding closing, or between approximately 6.3
and 7.3 percent of the Advisory Board's common stock outstanding
after giving effect to the transaction. The transaction is
expected to close in January 2015,
subject to clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and other customary closing
conditions.
Further information regarding all terms and conditions contained
in the definitive stock purchase agreement will be included in the
Advisory Board's Current Report on Form 8-K, which will be filed
with the SEC in connection with the transaction.
CONFERENCE CALL AND WEBCAST
The Advisory Board Company will hold a conference call on
Wednesday, December 10, 2014, at
6:00 p.m., Eastern Time. The
conference call will be available via live webcast in the Investor
Relations section of the Company's website
at www.advisory.com/IR. To participate by telephone, the
dial-in number is 888-336-7150. Call participants are advised
to dial in at least five minutes prior to the call to register.
The webcast will be archived for seven days: from
8:00 p.m., Eastern Time, Wednesday, December 10, 2014, until 11:00 p.m., Eastern Time, Wednesday, December 17, 2014.
A supplemental presentation of information complementary to the
information presented in this release and that will be discussed on
the conference call will be made available in the Investor
Relations section of the Company's website
at www.advisory.com/IR prior to the conference call and will
remain available at such location through January 8, 2015.
ABOUT THE ADVISORY BOARD COMPANY
The Advisory Board Company is the leading provider of
insight-driven technology, research, and services for organizations
in transforming industries. Through its innovative membership
model, the company collaborates with more than 200,000 leaders at
4,500 member organizations to elevate performance and solve their
most pressing problems. The company provides strategic
guidance, actionable insights, web-based software solutions, and
comprehensive implementation and management services. For more
information, visit the firm's website, www.advisory.com.
ABOUT THE EDUCATION ADVISORY BOARD
In 2007, The Advisory Board Company established the Education
Advisory Board whose mission is to elevate the quality,
accessibility, and success of colleges and universities across the
nation. Over the past seven years, the Advisory Board has developed
deep relationships with more than 600 of the country's best
colleges and universities, and through its industry-leading
insights and data-driven technology, it is helping students succeed
and institutions of higher learning thrive.
ABOUT ROYALL & COMPANY
Founded by Bill Royall, and having
served higher education since 1989, Royall & Company is the
industry leader in strategic student engagement and enrollment
management, financial aid optimization, and alumni
fundraising. Royall utilizes a data-driven,
analytically-based approach to provide high return-on-investment
outcomes for its 350 non-profit college and university clients,
allowing them to achieve such goals as strengthening national
reputations, broadening student enrollment, improving academic
profiles, and enhancing revenue. Royall's highly renewable,
scalable business model is founded on its proprietary approach to
student engagement, its deep client relationships, and its unique
visibility into the preferences of students and families. For
more information, please visit www.royall.com.
FINANCIAL INFORMATION AND NON-GAAP FINANCIAL MEASURES
A reconciliation of Adjusted EBITDA for the twelve month period
ending September 30, 2014 to the most
directly comparable GAAP measure is provided below. All numbers are
in thousands.
|
The Advisory Board
(1)
|
|
Royall
(2)
|
|
Combined Company
(3)
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
$ 15,371
|
|
$ 9,704
|
|
$ 25,075
|
Equity in loss of
unconsolidated entities
|
7,491
|
|
—
|
|
7,491
|
Accretion of
non-controlling interest to redemption value
|
6,890
|
|
—
|
|
6,890
|
Provision for income
taxes (4)
|
14,710
|
|
6,294
|
|
21,004
|
Other (income)
expense, net (5)
|
(951)
|
|
21,771
|
|
20,820
|
Depreciation and
amortization
|
35,937
|
|
8,045
|
|
43,982
|
Acquisition and
similar transaction charges
|
268
|
|
—
|
|
268
|
Fair value
adjustments to acquisition-related earn-out liabilities
|
(4,600)
|
|
—
|
|
(4,600)
|
Vacation accrual
adjustment
|
850
|
|
—
|
|
850
|
Stock-based
compensation expense
|
20,867
|
|
—
|
|
20,867
|
Adjusted EBITDA
|
$ 96,833
|
|
$ 45,814
|
|
$ 142,647
|
(1)
|
Amounts in this
column represent unaudited financial data for the twelve months
ended September 30, 2014.
|
|
|
(2)
|
Amounts in this
column represent preliminary unaudited financial data for the
twelve months ended September 30, 2014 and are subject to
change.
|
|
|
(3)
|
The combined amounts
represent the total of the Advisory Board and Royall results in the
prior two columns, are presented for illustrative purposes, and are
not necessarily indicative of the financial performance of the
combined company had Advisory Board and Royall been combined during
the period reported. In addition, the amounts in this column
do not reflect pro forma purchase accounting required to present
the acquisition as of the beginning of the Advisory Board's current
fiscal period.
|
|
|
(4)
|
For Royall, estimated
tax rate used is consistent with effective tax rate of the Royall
operating company and is subject to change.
|
|
|
(5)
|
For Royall, includes
interest expense, net of $16,502 and amortization of deferred
financing costs of $5,269.
|
The Advisory Board is unable to reconcile its projection of
non-GAAP earnings per share for calendar 2015 because information
is not available for management to identify or reasonably estimate
future amortization of acquisition-related intangibles, future
acquisition and similar transaction charges, future fair value
adjustments to acquisition-related earn-out liabilities, and future
stock-based compensation expense, each of which is excluded from
the GAAP financial measure. Because of the contingent nature of
these exclusions, which cannot be reasonably predicted, the
specific adjustments cannot be forecast with any accuracy and
therefore a reconciliation of non-GAAP earnings per share to GAAP
net income attributable to common stockholders per share has been
omitted from this release.
FORWARD-LOOKING STATEMENTS
Any statements in this press release about prospective performance
and plans for the Advisory Board (including the anticipated
accretive effect of the proposed acquisition to calendar year 2015
non-GAAP earnings per share, other anticipated accretive effects to
growth, margins, and cash flow, and other pro forma financial
information), the expected timing of the completion of the proposed
acquisition and the ability to complete the proposed acquisition,
and other statements containing the words "expects," "anticipates,"
"plans," "could," "may," "will," and similar expressions,
other than historical facts, constitute forward-looking statements
within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Factors or risks
that could cause the Advisory Board's actual results to differ
materially from the results we anticipate include, but are not
limited to: the occurrence of any event, change or other
circumstances that could give rise to the termination of the stock
purchase agreement; the inability to complete the proposed
acquisition due to the failure to satisfy conditions to completion
of the proposed acquisition, including failure to obtain clearance
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; the
failure to obtain the necessary financing arrangements set forth in
the debt commitment letter delivered pursuant to the stock purchase
agreement; and risks related to disruption of management's
attention from the Advisory Board's ongoing business operations due
to the transaction.
You are hereby cautioned actual results may differ materially
from those indicated by such forward-looking statements, and may be
affected by other factors, including those set forth below.
Historical and pro forma financial results should not be considered
as an indication of future performance. Additional factors
that could cause actual results to differ materially from those
indicated or implied by the forward-looking statements include,
among others, changes in the financial condition of the health care
industry or higher education industry, our dependence on renewal of
membership-based services, the need to attract new business and
retain current members and qualified personnel, new product
development, competition, risks associated with the Advisory
Board's software tools and management and advisory services, risks
relating to privacy, information security, and other health
care-related laws and standards, maintaining third-party provider
relationships and strategic alliances, the ability to license
technology from third parties, impairment of goodwill, and various
factors related to income and other taxes, as well as other risks
and uncertainties described in the Advisory Board's Annual Report
on Form 10-K for the fiscal year ended March
31, 2014, which is available for review on the Company's
website at www.advisory.com/IR and at the Securities and Exchange
Commission's website at www.sec.gov, and in subsequent reports on
Forms 10–Q and 8–K filed with the SEC by the Advisory Board.
Accordingly, readers are cautioned not to place undue reliance
on the forward-looking statements made in this release, which speak
only as of the date of this release. The Advisory Board does not
undertake to update any of its forward-looking statements, whether
as a result of circumstances or events that arise after the date
they are made, new information, or otherwise.
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