The deal could significantly affect the higher-education market, analysts said.

Update: In an earlier version of this story, we erroneously reported that McGraw-Hill’s education business was being purchased by Apollo Global, which owns the for-profit University of Phoenix. McGraw-Hill’s education business is actually being purchased by Apollo Global Management, an unrelated firm. We regret the error.

In a surprise $2.5 billion cash and debt deal expected to be final by the early part of 2013, a private equity firm will purchase McGraw-Hill Education’s digital and traditional textbook business.

After Apollo Global Management completes the deal, McGraw-Hill will be renamed McGraw Hill Financial and will focus solely on its major brands such as J.D. Power and Associates, Standard & Poor’s, and S&P Capital IQ. McGraw-Hill representatives say the company is confident that this refocus will prove profitable for the company’s shareholders.

The move could significantly affect the higher-education market, analysts said.

“I think the acquisition holds promise for the key trends that we see,” said Eric Bassett, vice president and practice leader at Eduventures, an advisory services company for the higher-ed community. “The future of higher ed and educational content generally is about the mix of technology and content. The company that was McGraw-Hill is going to need capital to continue to invest in technology to complement its content.”

Bassett feels confident that Apollo’s acquisition of McGraw-Hill Education will prove successful for both parties.

“I think the future trend is beginning to build a relationship with the individual student,” said Bassett. “Students are not linear; therefore, institutions cannot have accountability unless you can begin to define impact on individual students. Everything that I’ve seen suggests that Apollo understands these trends.”

“With a longstanding track record of investing behind leaders in education, Apollo is pleased to be acquiring a marquee business that has been a pioneer in educational innovation and excellence for over a century,” said Larry Berg, an Apollo senior partner. “We look forward to leveraging the company’s leading portfolio of trusted brands and innovative digital learning solutions to drive growth through the ongoing convergence of education and technology on a global basis.”

McGraw-Hill will gain $250 million in Apollo Global Management debt at an annual interest rate of 8.5 percent, and the company anticipates good returns. McGraw-Hill projects approximately $4.4 billion in 2012 revenue, with 40 percent of that coming from its international markets.

McGraw Hill Financial plans to use the estimated $1.9 billion profits to make acquisitions, pay back previously incurred debts, and fund its stock buyback program.

“We’re excited about this announcement and what it means for McGraw-Hill Education,” said Lloyd G. “Buzz” Waterhouse, president and CEO of McGraw-Hill Education. “Apollo is one of the world’s largest private equity firms and has been making significant investments in learning companies for more than a decade. By combining our content, pedagogical expertise, and powerful brands with Apollo’s resources, we’re creating a company poised for success as it works to fulfill the promise of education for students around the world.”

In September 2011, McGraw-Hill announced plans to increase shareholder value by splitting itself into two separate industry sectors: one focused on finance and global markets, and the other on education. The split proved less profitable than expected, as McGraw-Hill announced a 14-percent drop in third-quarter net income earlier this month.

Harold McGraw III,the company’s chairman, president, and CEO, said he is optimistic about the possibilities that the acquisition presents to the newly-named McGraw Hill Financial and Apollo Global Management.

“Today’s transaction marks a transformative time for our company, shareholders, customers, and employees,” said McGraw. “The strong trends driving global financial markets create enormous growth opportunities for McGraw Hill Financial. As markets become more interconnected, as more borrowers around the world fund growth through the capital markets, and as technology produces more and more data in a complex world, our leading brands provide essential intelligence and independent benchmarks across asset classes and markets.”


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