Charleston tech firm may bail on its biggest-ever buyout after 3 years (2024)

A $750 million bet that a Charleston technology firm placed to buy a creator of online learning and "corporate impact" products isn’t paying off.

In fact, the chief executive of Blackbaud Inc. recently called the acquisition a “drag” that’s weighing down the rest of the Daniel Island-based company.

And it’s now reached the point that a sale of the underperforming subsidiary is in the cards after less than three years.

The elephant on the balance sheet is Everfi, Blackbaud's biggest-ever buyout. Acquired on New Year's Eve 2021, the 500-worker company headquartered in the nation's capital was an established player in a market valued at $10 billion, with 2,000-plus customers that included major financial institutions and the NFL and a seemingly bright future.

Everfi was expected to build on its $120 million in sales with projected gains in the years ahead approaching 20 percent.

At the time, the company was riding a hot trend in corporate America. In addition to selling traditional "K-12" digital learning products — including a $500,000 deal with MUSC Healthand 70 South Carolina public schools — the Everfi platform could help big businesses meet their environmental, social and governance goals, or ESG, by providing content ranging from financial wellness to mental health to racial equity and workplace diversity.

Blackbaud projected the acquisition would allow it to "to significantly pull forward the timeline for achieving its long-term goal of mid-to-high single-digit organic revenue growth — beginning in 2022."

But after an initial $113 million boost in the 12 months after the deal closed, Everfi hasn't delivered on that prediction. Sales within its division were flat at about $150 million in 2023. For the first half of this year, Everfi's revenue is off 7 percent to $47.3 million.

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"Everfi has unique and valuable assets, including a comprehensive catalog of content, great customer relationships and a deep talent pool," Blackbaud told investors in a July 31 filing with the Securities and Exchange Commission. "However, Everfi has faced a number of external challenges, and while we have taken decisive actions ... Everfi continues to be a drag on our overall performance, and we expect that to continue."

Among the changes was the sale this year of an $8 million-a-year creative services business that Everfi owned in the United Kingdom and, more recently, a management shakeup. The company on Friday referred to its public statements about Everfi.

Blackbaud CEO Mike Gianoni raised a red flag in the spring, citing unfavorable "shifts" in spending on the "corporate social responsibility" programs that Everfi sells to businesses. He also announced that an internal turnaround plan was in the works.

"So the pressure we've seen has been in the financial services space starting last year," Gianoni told analysts and investors in May. "But the demand is still there, and the interest is still there."

He took a tougher stance on his next call a few weeks ago, when Blackbaud reported that Everfi's second-quarter sales were down 9 percent from a year ago to about $24 million.

"Accordingly, we are actively considering a range of strategic alternatives for Everfi, one of which includes a potential divestiture of the business," Gianoni said.

He added that the review "is in early stages, and Everfi remains well-positioned to support its customers."

The Blackbaud CEO of more than 10 years also stressed, repeatedly, that the problem child accounts for a relatively small portion of the overall business, which specializes in technology products and services designed specifically for philanthropic organizations. It isn't the 20 percent growth engine envisioned less than three years ago.

"Again, it's 8 percent of the company, to be clear," Gianoni said in response to an financial analyst's question about the sales headwinds. "It's predominantly in bookings, and the revenue drag on the company is Everfi. The rest of the business, 90 percent or so, ... just grew 8.5 percent."