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CUC Will Buy Knowledge Adventure

Technology: The small Glendale-based educational software maker is to be acquired in a stock deal worth $50 million to $100 million. The new parent would add marketing strength.

November 06, 1996|KAREN KAPLAN | SPECIAL TO THE TIMES

Educational software maker Knowledge Adventure became the latest boutique multimedia firm that may lose its independence with the disclosure Tuesday that CUC International, a marketing company, plans to buy the privately held firm by year-end.

Glendale-based Knowledge Adventure will be purchased in a stock deal valued at between $50 million and $100 million, said Laura Hamilton, CUC International's vice president of investor relations.

The deal is the latest in a series of moves by Stamford, Conn.-based CUC to position itself as the dominant player in educational software. In February, the company bought Torrance-based Davidson & Associates, a leader in the educational software arena. That followed SoftKey International's 1995 purchases of Learning Co. and Minnesota Educational Computing Co.

Knowledge Adventure would become part of CUC Software, a Torrance-based division that includes Davidson as well as Sierra Online and Blizzard Entertainment, which were purchased by CUC in February. Knowledge Adventure will remain in Glendale, and no layoffs are planned, Hamilton said.

Larry Gross, Knowledge Adventure's president and chief executive, would remain at the head of the company, and his brother, company founder and Chairman Bill Gross, would serve as an advisor. They could not be reached for comment Tuesday.

Knowledge Adventure, whose annual sales are an estimated $30 million, is tiny compared with its likely new parent, which boasts revenue of $1.7 billion a year. But the company has established a reputation as an innovator that uses proprietary multimedia technologies to create high-quality products.

Its best-known titles include the "Jump-Start" series of educational programs for toddlers and science exploration programs such as "3D Body Adventure." Director Steven Spielberg boosted the company's profile substantially in 1994 when he bought a small equity stake.

Like many other small and mid-size software firms, though, Knowledge Adventure found itself struggling in the face of fierce competition for shelf space, eroding prices and softer-than-expected demand for many types of consumer software products.

"Distribution has been difficult for these companies," said Charles Finnie, a general partner at Volpe Welty & Co. in San Francisco. "It's very expensive to get shelf space at the retail level if you're a small software developer."

Marketing is CUC's strength. In the coming months, for example, the company will begin selling Knowledge Adventure products through a software fund-raising program CUC has established with thousands of schools across the country, Hamilton said.

CUC, whose core business is selling discounted products and services to membership clubs, will also use direct-marketing techniques to increase Knowledge Adventure's sales, she said, and is moving toward electronic distribution for software.

Bob Davidson, chairman and chief executive of CUC Software since February, said Davidson & Associates has benefited greatly from its new parent.

"We're happy campers," said Davidson, who founded Davidson & Associates with his wife, Jan, in 1984. "They're a very entrepreneurial company. They recognize that we knew what we were doing, and they supported us in the marketing and sales area."

Davidson said the idea to acquire Knowledge Adventure came from employees of Davidson & Associates and Sierra Online, who hold the company in high regard.

Analysts initially greeted CUC's foray into software with skepticism, bidding its stock down almost 17% on the day the Davidson and Sierra Online deals were announced.

Since then, though, CUC has demonstrated that educational and entertainment CD-ROMs were a good match for its distribution channels, said George Sutton, a vice president with the Rauscher Pierce Refsnes investment firm in Dallas. On Tuesday, CUC shares rose 62.5 cents to close at $25.375 on the New York Stock Exchange.

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