Wow, consolidation is running rampart in the eLearning space as everyone continues to merge or acquire. Look to your left and look to your right; easily one of those will not be around in six months. Today BlackBoard announced plans to merge with WebCT; the two leading providers in the higher education eLearning space (BlackBoard alone forecasts US$150M+ for their fiscal year).
Now having gone through a "merger" myself (SkillSoft and SmartForce) it sounds like BlackBoard is really acquiring WebCT and it doesn't bode well for WebCT given that there is a tremendous amount of product overlap between the two companies (a similar comparision would be if SkillSoft and NETg, the leading providers in the corporate education space, merged). It also doesn't bode well for WebCT's willingness to play with open source (sorry Harold!) If you are a WebCT employee you may want to dust off your resume with comments like this:
The combined company expects to realize significant efficiencies by leveraging shared development infrastructure, and mitigating duplicative marketing initiatives and administrative expenditures.
This announcement comes on the heels of Saba acquiring Centra. Now this deal makes more sense as Saba continues evolve beyond its Learning Management Software (LMS) roots (Saba recently bought THINQ) by rounding out its services offering. Personally I like its focus on 'on-demand learning' and its Services Oriented Architecture as I think generic content is a tough business to be in. Plus Saba + Centra creates a US$100M revenue company which is not too shabby!
And of course back in August we had WebEx buying Intranets.com and SumTotal (created out of Docent + Click2Learn) buying PathLore as I discussed in this post.
Clark - you need to update your Chart of Consolidations!
The Resulting Big Five: (forecasted annual revenue)
SkillSoft $200M+
NETg $150M-200M?
BlackBoard $150M+
Saba $100M+
SumTotal $100M
* strangely none of the investors like any of these deals as the stocks of the related companies have all dropped when they have announced their news.
So whom do you think will be doing a merger or acquisition next?
What do you think of these recent ones?
Wednesday, October 12
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8 comments:
Could it be that the motivation for some LMS consolidation is more a hope/belief that $1 + $1 > $2 revenue , instead of product attributes, customer opinions, complimentary products/markets or competitive forces (open source, etc)?
I would tend to agree. They are either trying to buy revenue (1+1=2.01) or take out the closest competitor. Not a lot of innovation going on, just more circling of the wagons. But the LMS market is a pretty small market that is quickly being overrun by enterprise software from above and open source from below. For more fun look at the content market for corporate training (SkillSoft, NETg, MindLeaders etc) where commodization of generic content is really pushing down pricing where the only saving grace is their ability to push supplemental services like custom content, virtual classroom, etc.
What we are seeing is simply further implosion of the dedicated e-learning technology industry.
The more oligopolistic this market becomes, the more generic it becomes, and the less able it is to sustain the pretense of any meaningful differential advantage. As open source systems undermine it from below (particularly in the academic arena) and ERP systems make it redundant from above (particularly in the corporate arena), the less relevant this relatively small software market segment becomes.
Hence the increasing investor wariness. Soon to be followed by more enthusiastic uptake of what I have been advocating for ten years now – educators, trainers, and especially learners will start to focus less on the means and more on the end, invoking whatever technologies happen to be mainstream to facilitate whatever learning experience is most appropriate to them. IT departments will find it easier to wrest away from training departments the decisions about enabling technologies, and learning information flows will move out of their relatively proprietary niche and finally become fully integrated with the rest of the corporate nervous system.
The openness and dynamism of the web will finally be allowed permeate the thinking of the learning establishment, and Model-T e-learning will succumb to a flood of performance-driven innovation.
Godfrey Parkin
Two thirds of mergers diminish shareholder value. Can management of these companies be so delusional as to think they are going to beat the statistics?
The interlocking nature of board and investor relationships usually drives deals like this. They believe removing duplicate SG&A can help eek out a profit, and prop up the stock price enough to get liquidity.
It's sad to add up all the VC, IPO, and PIPE proceeds in the e-learning market because they will never come close to getting it back through earnings.
I'm afraid that Godfrey has the chicken and egg backwards here. It is the generic quality of the technology that has driven pricing down and resulted in the necessary and healthy (in my opinion) consolidation. Those that are heavily invested in the nuances of the various features sets (some people even make a living parsing these distinctions) lose sight of how similar the true functionality really is.
That said these two different mergers are quite different. Saba's rationale is muddied and about shoring up weakness, Blackboard's is leveraging and enhancing strengths.
Saba/Centra seems motivated by the desire to claim bragging rights over size with the idea that this signals stability in the eyes of prospective customers. Of course customers can already buy these integrated products so merging only increases the buyers power as Saba now needs to make the Centra sale instead of being indifferent.
Blackboard/WebCT is a much stronger combination that allows the company to continue its ability to up-sell in the U.S. market and really have free rein in the international market. I subscribe to the Microsoft analogy whereby Blackboard has emerged as dominant by virtue not of its product design but by the savvy business decisions its has made that have allowed it greater access to capital.
It is not often I disagree with Trace but I view Saba+Centra as an attempt to break out of the LMS technology box, which is being heavily commoditized, by trying to tap into this notion of Web 2.0 (all about people versus all about content (v1.0)) and a people centric approach ("citizen level content creation"). That gets my attention and kudos for taking logical chance.
BlackBoard+WebCT I simply view as #1 taking out #2 in higher ed. I sincerely doubt that BlackBoard can make inroads in the corporate market and best of luck making money in the cash strapped higher ed market (which makes that market ripe for open source).
Remember, BlackBoard is Microsoft .NET based while WebCT is Java J2EE based. Not alot of intregration options - it's going to have to be one or the other. Granted, BlackBoard was far smarter by timing it's IPO just right while WebCT remained private.
For those who care about details here is what Baird analysts had to say:
Blackboard Acquires WebCT
Blackboard plans to acquire rival WebCT for an effective cash purchase price of approximately $154 million, with $70 million financed. This represents approximately 3.6x WebCT’s TTM revenue of $43 million (versus 4.8x Blackboard’s TTM EV/revenue) and an estimated 35–38x EV/EBITDA, or a 23% premium over the aggregate venture capital nvestments in the company. The deal is expected to close in Q4 or in early Q1:06. The company described WebCT’s gross margin as 79% and operating margin as approximately 5%. Gross margin runs higher than Blackboard’s
70% range, as WebCT does not sell hardware and has also not been as focused on lower-margin ASP hosting sales as Blackboard. The company was GAAP income and cash flow positive in 2004. The company will contribute 274 employees, 35–40 sales reps, and roughly $26 million in cash. WebCT has long been Blackboard’s most
significant rival in the course management system (CMS) software market, boasting 1,480 clients compared to Blackboard’s 2,229 customers and an estimated 27% market share versus Blackboard’s 54% share in the core CMS market. With only minimal customer overlap of approximately 50 accounts, the acquisition of WebCT would increase Blackboard’s unique client base by approximately 60% and the
amount of total new licenses by nearly 50%. Approximately 38% of those new clients are running a non-enterprise version of the WebCT product, pointing to a significant
up-sell opportunity in the enterprise solution segment alone. Furthermore, a lower average selling price and a lower level of product penetration within the WebCT
customer base, averaging only one license per client, effectively extends the life and upside of Blackboard’s domestic cross-sell opportunities, representing another
catalyst for accelerated growth.
WebCT’s international success was clearly a major motivator for the transaction.
WebCT has been making major strides in international markets, with a particular focus on the U.K. (45% of U.K. higher education institutions with enrollments over 1000 students – or over 100 clients – are on WebCT), Canada, and China. The
company’s international focus is reflected in its revenue breakdown: 28% of revenue is derived from international, compared to Blackboard’s 15%, which is partly
attributable to the company’s success with its larger reseller network. Acquiring WebCT effectively removes all meaningful competition in the company’s overseas markets, which should allow for even faster expansion and market penetration,
especially in key markets like the U.K. Assuming the merger closes by early 2006, Blackboard expects the transaction to be moderately accretive to cash earnings on a
non-GAAP basis and dilutive on a GAAP basis for FY:06 due to the effect of purchase accounting. We applaud the merger as one that makes tremendous sense both strategically and financially. We believe there are few mergers that fit as neatly
or provide as many long-term opportunities as this one, be it in terms of market dominance, pricing power, cross- and up-selling opportunities, international
expansion, and shared vision and culture. In addition to providing significant cost synergies in several areas, we believe the merger provides a clear opportunity for
accelerated growth, as the combination removes Blackboard’s largest competitor and
contributes a strong reseller network. The merger effectively gives Blackboard the opportunity to make its platform the standard course management system in higher
education. We understand there was other interest in WebCT, and Blackboard’s acquisition removes the threat of better-capitalized players entering the market using WebCT as a platform. Finally, as a result of better operating leverage, larger scale, and changes in product mix, the company should generate higher margins longer term. We upgraded Blackboard to Outperform.
See comments by A-HEC Founder Rob Abel at Higher Education Insights Blog.
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