Sep
16
Sum of Parts in Hole
Filed Under B2B, Blog, Cengage, eBook, Education, eLearning, Financial services, Industry Analysis, internet, Publishing, STM, Thomson, Workflow | 3 Comments
So, having noted the Jana/Teachers activist shareholders story on McGraw-Hill recently here, no one is more surprized than me at seeing it come instantly true. I am left wondering just how that happened. So Terry McGraw gets a letter from Jana saying “You would be better off in two parts”, and doesn’t say “Who the hell are you?” but responds “Smart idea boys, we’ll do it next week!” The only explanation is that this loaf was already half-cooked, and the Jana intervention gave Chairman McGraw opportunity to do what he wanted to do anyway, and follow Thomson, Reed, Wolters Kluwer and others in the one respect that they all have in common: they all sold out of education. Of course, this is blue-blood McGraw-Hill, so you don’t sell out, you just cast it adrift, while climbing adroitly into an accompanying life boat.
As a result we have two vessels now heading in opposite directions. McGraw Markets (everything which is not education), including all the B2B and credit rating assets, is in one, and everything education is in the other. But Pat English, a shareholder and CEO of Fiduciary Management Inc, told Reuters that this was only the start: “It doesn’t make sense to have S&P ratings, S&P indices, Capital IQ, Platts, and other companies under one roof”. So what happens in October? Do we see Chairman McGraw skip down the gangplank and set sail in the SS S&P, leaving the waste barge B2B to sink in the Hudson? Anything is possible of course: we are watching one of the largest corporate deconstructions in the sector since D&B sold all of their global subsidiaries to franchise holders.
And why? The answer is a not inconsequential $3 billion. This is the difference between the valuations expected for Markets and Education apart, compared to the current, or pre-announcement, values. Education is seen to be in the slow lane and holding back an advanced valuation of S&P. No one has ever explained cogently to me why companies, however large, cannot have valuations which reflect the intrinsic worth of their parts, and why “true” valuations cannot be exhibited without break out, but clearly I am in the nursery class in these matters. And my eye also caught the Chairman’s statement that $1 billion in overheads would be saved. That I really appreciate. I can see that the corporate office of a chairman, for example, would need less aides, fewer executive jets and less travel in a global $4.5 billion company than in a $6.5 billion global company, but since Chairman Terry is going to Markets, there will have to be another Chairman at Education, also aided and abetted and privately flying around a $2 billion company. So where does the saving come in?
And where does the future come in? The US education market is grossly over-published. Margins are too low to attract investment (hence this deal). The nation hovers on the brink of radical IT solutions to address a national standards deficit, present across the developed world, which can only be tackled through individualized digital learning: everything else has failed. McGraw Education have a decent record of innovation, good assessment assets like the California Bureau, and 20 years of struggle, from Primis onwards, to show in justification. But they sit on the edge of the same decreasingly relevant mountain of textbook assets that also contains Harcourt Houghton Mifflin. They have a junior position in non-US markets, compared with their major competitor. But no one can currently compete with Pearson. Cengage have learnt to go global and diversify. McGraw could go with Harcourt, but the resulting debt pile would be bigger than the Greek economy, so this is unlikely. Maybe the “we now have the message” boys at IBM, or Intel, or Cisco, will buy them. But why? There are some good assets in medical education (Harrisons) but are we looking here at a slow death from asset sales until only the unsaleable are left? Eventually Pearsons’ major competitor in global markets will be a borne digital platform company, but these assets will not help them substantively to reach that position. On the other hand, my telescope, scanning the horizon desperately for a rescue vessel, sees the sleek global liner HP, just refuelling on high octane Autonomy. Vast interests in education there, and the potential to be the platform player to fight Pearson?
Back at Markets there are problems of a different kind. Platts, aviation and construction all have heavy data capable of real impact in workflow orientated networking. Although serious attempts have been made to leverage this, there is no evidence of much stomach for the fight, some critical people left, and the failing magazine/advertising/subscription businesses are, well, still failing. Pity that the “very best thinking” of the management team, which the Chairman quoted as the reason for the split, was not applied here some years ago. Alongside these are really good, but unrelated, businesses like JD Powers. And then this high grade financial services stuff, with high growth Capital IQ and of course the S&P play most valuable of all. I am forced to repeat the question of Mr English in other words: unless these businesses are radically changed in strategic direction, this company looks as much like a portfolio conglomerate as ever its now deceased parent did. Will this management make those changes? Or will they sell the most marginal assets next year and use the cash to buy back more shares? And is this portfolio nature a real poison pill against a purchase by another mega corp? So eventual break-up is eventually inevitable?
More questions than answers, but as we all search for value on the ocean bed of this recession, there can be no doubt that this will become a common path for beleaguered corporates in years to come. Until, in fact markets recover and growth seriously returns.
Sep
9
Let there be Growth
Filed Under Blog, eBook, Education, eLearning, Industry Analysis, internet, mobile content, Publishing, social media, Workflow | Leave a Comment
Back at my desk, I am desperately looking for an upbeat story to kickstart Autumn, or, if you prefer, The Fall, though that sounds more like an advertising or newspaper story than anything else. If you seek a growth market then look at educational publishing (http://www.outsellinc.com/store/products/1001), within which the best that the industry can offer is in ELT (English Language Teaching). A succession of reports from Outsell underlines this, both in terms of whole marketplaces like China (http://www.outsellinc.com/store/products/1022), or sectors like distance learning (http://www.outsellinc.com/store/products/1018). Sections on India and Brazil will help complete the map in due course, and then my erstwhile colleagues at Outsell (my daughter in this instance) will be under great pressure from people like me to return to their pathfinder ELT report of November 2010 and update it completely.
The economic reasons for all of this are fairly obvious, but my feeling at the moment is that the traditional coursebook ELT publishers are not going to inherit the Earth. In fact, quite the opposite. They will get an uplift but the real prizes will go elsewhere. The BRICs winners will be assessment-led, mobile platform driven, self-diagnostic learning systems controlled by the user (in terms of learning process) and by accreditation/certification in terms of content. In fact, I am still where I was last week when writing about strategies for integrating automated marking into learning processes, and events this week have driven the point home for me in a very emphatic way.
The announcement that ETS bought Edusoft Learning three days ago (http://www.prnewswire.com/news-releases/ets-acquires-edusoft-ltd-computer-based-learning-firm-129298618.html) suggests to me that the theme of assessment driven learning is alive and well in the most important global assessment factory, the not for profit Educational Testing Services outfit in Princeton, NJ. Home of TOEIC and TOEFL, the most important American English examinations on the planet, ETS have long nurtured ambitions to move into a broader engagement with users than simple certification. In earlier years it might have seemed appropriate to buy a publisher and produce course materials that supported examination candidates, but those were shark-infested waters, with heavy competition from Pearson, OUP, Macmillan, Cengage (on the move, as I noted last week), CUP and a host of local others. Now the dramatic influx of heavy technologically driven platforms has stretched out the competition, from Pearson, with a host of implanted acquisitions and a great deal of contingent technology clearly in the lead. Pearson, however, plainly lack the ability to integrate branded certification in the ELT sector. The only other publisher who really could do that is Cambridge, but there the inhibitions are organizational (why Cambridge University Press and Cambridge Assessments, the foremost source of British English accreditation cannot work together defeats understanding), and, apparently, psychological – having made a capital start on learning platforms with English 360 they are apparently allowing their best shot at a competitive positioning to go its own way).
Which leaves ETS with a real opportunity to make the English Discoveries Online platform a vital part of the delivery for mobile and fixed English learning activities, in special purposes English as well as certified competency. And in the process this answers a question which is becoming more important to every educational publisher who has spent a decade in a halfway house called Blended Learning. What do we do after Blended Learning? We do Integrated Learning, where the workflow around the qualification, and the ability to concentrate skills acquisition, diagnose problems and ensure that acquired skills are embedded can be delivered on the output device of your choice, with full integration of voice, image and text. In other words, real blending of real learning, not just a convenient reason for keeping comforting old courseware/textbooks in the mix!
And why will this work first in ELT? Crudely, because teachers often work alone, and find it easier to adapt to a mentor role. And because commercial teaching outfits want low cost (less people) solutions. And because more and more students want to study alone and control their learning processes. Edusoft know the structure of these markets very well. For 20 years the Israeli software house has had to turn itself into a local/global presence, and its contracted activity with universities and schools, public and private, in every important ELT market, whether or not this represents the hard to measure global leadership it claims, certainly indicates a penetration close to that point. The 19 education ministeries with whom they have contracts do not quite map yet to the 180 countries and 50 million examinees claimed by ETS, but growth is the objective. Edusoft have distribution in 30 countries, and have localized their platforms in 30 languages. All this represents a high degree of success for owner Soly Kanes and current CEO, Rafi Moran, who was formerly the marketing man. The critical European, Asia Pacific and, above all, Latin American markets are well invested.
I had the pleasure a few months ago of speaking to the senior executives of one of the competing players in this sector. One of the questions from the floor was “What relevance does workflow have to an educational experience?”. I am aware that my answer was not as coherent as it might have been: I hope this note makes it clearer that educational processes are a form of workflow, and that we seem to be moving towards pure demonstrations of that in software terms at a very fast rate.
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