Gawker: News Corp Is In Your Child's School To Stay

Yesterday's announcement that News Corporation (the owner of 20th Century Fox Home Entertainment, the 27 station Fox TV Network, Wall Street Journal, and numerous other entertainment and information services) is acquiring a 90% stake in MCPS business partner Wireless Generation is big news in financial circles.  At the same time, some observers are concerned about what appears to be a corporate takeover of America's education systems.  Others question whether the acquisition makes financial sense for News Corporation.

Commentary from Valerie Strauss, author of The Answer Sheet at the Washington Post:

This didn't take long: Joel Klein announces Nov. 9 that at year’s end he will resign as York City’s Schools chancellor to become executive vice president at Rupert Murdoch’s News Corp. Yesterday, the company announced that it was buying a technology company with big financial ties to the New York City school system.

Murdoch’s company, according to a story at businesswire.com, is acquiring 90 percent of Wireless Generation, a privately held Brooklyn-based education technology company, for approximately $360 million in cash. It will become a subsidiary of News Corp.

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“When it comes to K through 12 education,” Murdoch said in a statement about the Wireless Generation purchase, “we see a $500 billion sector in the U.S. alone that is waiting desperately to be transformed by big breakthroughs that extend the reach of great teaching.”

No doubt “great teaching” is what motivates Murdoch (whose News Corp. had, as of Sept. 30, 2010, total assets of approximately $56 billion and total annual revenues of approximately $33 billion).

The current wave of education reform based on “data” and “accountability” hasn’t done much to improve public schools, but it sure is helping improve the balance sheets of a lot of for-profit companies.

Commentary from Gawker.com:  

Get ready for News Corporation to become involved in the US education system in a big way—almost as big as Christians, and Palinites, and union-hating... well, all the same sh[**]. Anyhow, lots of money to be had, selling sh[**] to your crumbling schools.

Commentary from Rafael Corrales at Fortune Magazine online:

Rupert Murdoch's News Corp. (NWS) just purchased Wireless Generation for $360 million. Technically it's $360 million for 90% of the company, but either way it's a lot of money.

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But so much of the above just doesn't make sense. Here's why:

• A high revenue multiple for a business with tough sales cycles: As of this summer, Wireless Generation was on a $60 million revenue run rate. Given that the News Corp purchase essentially values the company around $400 million, that means News Corp bought the company at a +6.5x revenue multiple. That's crazy. Just one more point of context, Wireless Generation has been around roughly 10 years.
• Where are the profits? Wireless Generation isn't a wildly profitable company. In 2007, the last year I have detailed financial data on them, they were not profitable and they had about 250 employees. Now they are up to about 400 folks, and perhaps they might be investing in people ahead of growth, but even then I'm not sure that a wildly profitable business will ever be there.