The education business’s sales have shrunk in seven of the past eight quarters as states and cities cut school budgets for textbooks. Apollo, co-founded more than 20 years ago by Leon Black, is buying the division as the industry reinvents how it publishes content.

The unit is “migrating to a more subscription-based business model, which would have more predictable revenues, and could conceivably have better profitability because you could eliminate the manufacturing and inventory costs,” said Peter Appert, an analyst with Piper Jaffray & Co. in San Francisco. “It’s all about figuring out ways to distribute your content and broaden its appeal in the market.” He spoke in an interview before a deal was announced.

The education division reported $2.3 billion in sales last year and publishes in more than 65 languages. McGraw-Hill has weighed a sale or a spinoff of the business since at least last year, when hedge-fund investor Jana Partners LLC proposed a plan for a breakup. McGraw-Hill “has consistently underperformed its potential and traded at a sizable discount,” with the education unit creating a “drag” on the company’s value, Jana said in August 2011…

McGraw-Hill’s origins date back to 1888, when McGraw’s great-grandfather, James H. McGraw, acquired The American Journal of Railway Appliances, according to the company’s website. More than 20 years later, he merged his book-publishing department with John Hill’s, creating the McGraw-Hill Book Co. In 2009, McGraw-Hill agreed to sell BusinessWeek magazine to Bloomberg LP, the parent of Bloomberg News.

Via Bloomberg News

Jeff Trachtenberg at The Wall Street Journal reports: 

The sale ends a plan by McGraw-Hill to take the education unit public. McGraw-Hill said in September of last year that it intended to hive off its education arm from its financial-services business, which includes the Standard & Poor’s bond-rating service.

After reviewing offers—including one from private-equity firm Apax Partners Ltd., the majority owner of Cengage Learning, which publishes textbooks primarily for the college market—McGraw-Hill entered into exclusive talks with Apollo this month. Apollo was the highest bidder.

The price was lower than McGraw-Hill had hoped to get for its education business, reflecting the continued difficulties of the sector in general. On the precollege front, states have cut back significantly on textbook spending because of the difficult economy. The higher-education business is in a digital transition that has attracted new companies…

McGraw-Hill Education generated $836 million in revenue for the third quarter, down 11% from a year earlier. Its operating profit declined 20% to $253 million. McGraw-Hill Education said revenue at each component of its higher-education, professional and international group had declined during the quarter.

Via The Wall Street Journal