Aug
3
Learning a lesson from Jana and Teachers?
Filed Under B2B, Blog, Cengage, Education, eLearning, Financial services, Industry Analysis, internet, Publishing, Thomson, Uncategorized, Workflow | Leave a Comment
Activist investors from hedge fund Jana and the Ontario Teachers Pension Fund (“Teachers”) have bought 5.2% of McGraw-Hill Corporation with the avowed intent of forcing the division of the company into a financial services company and an educational/B2B company.
When the activists arrive, they always show an immediate profit: this announcement triggered a sharp rise in McGraw’s share price (http://dealbook.nytimes.com/2011/08/02/mcgraw-hill-shares-rise-after-activist-stake/), and a great deal more interest in what many media market investors have long regarded as an unspectacular mid-market performer. Disincentives in large media players have always included unified Chairman/CEO roles, and divided equity classes with limitations on voting shares. Incentives have always included the thought of break-up in conditions where the sum of the parts may be found to be greater than the value of the whole. McGraw now faces this scenario, and has known for at least a year that it was likely. Hence the strategic portfolio review launched last Fall, and the creation of a McGraw-Hill Financial Services division. But now that the real question has been asked by Teachers and Jana, how can management react without appearing to be running the company on the agenda of a powerful but still small shareholder?
Over the last decade the great principle in developing B2B assets has always been Portfolio. Sir Crispin Davies practised this at Reed, building a four legged table in the sure and certain knowledge that not all markets would go bad at once. Problems only arose when the education leg fell off, and the last recession provided his successors with the assurance that all markets can go wrong at once. Thomson Reuters’ reaction was different; move away from Portfolio into Wide Vertical – a huge construction from law and regulation to financial services and transactions where a broad base of clients can be inter-related and cross sold, and where service and content assets can be optimized. Will it work? Well, its work in progress and good progress is being made. And the not wanted on board assets like Healthcare are on the block.
These are options. But what about the McGraw-Hill asset base? What are its strengths and where does it dominate? The first thing to say is that, in comparative terms, great changes have taken place in the past few years which have surprised observers of this often fiercely conservative company. The sale of BusinessWeek and the acquisition of J D Power are cases in point. But in terms of the wholesale creation of the group asset base in digital first terms? Progress is there, but is seen by outsiders as slow and patchy, part of niche and product strategies rather than the platform and standards driven thinking of some of the market leaders. There is no doubting the pre-eminence of Standard and Poor’s, however, and the activists, by attacking at this point, may be more likely to set up a bidding war for this (Hearst are already in Fitch, Bloomberg and Thomson Reuters lead these markets) than create a successful IPO.
What about the other assets? B2B has huge positions of strength, but they are all under pressure. McGraw have long dominated construction, but now finds that while it did all the right things to get Sweets and FW Dodds into workflow networks, recession (and an ill-judged law suit with Reed Construction) has lost it concentration and time to market. Alongside it, Platts rested on its laurels for too long as the leader in oil price indexation (losing market position with Aramco to the tiny British player Argus Media) and is now rushing to catch up in other asset classes (its latest buy was the Steel Index) and broadening a portfolio which should be doing very well at this time. One hopes that Platts is seen as much as anything as a part of financial services (who bought New Energy Finance and Point Carbon? Bloomberg and Reuters), but probably it is seen as the counterbalance to construction and the aerospace/aviation holdings (who lost out to Reed in bidding for Ascend Worldwide), both of whom continue to require careful nursing to bring their brand strengths into full recognition in the digitally networked marketplaces in which they exist.
But you cannot invest in everything at once. McGraw-Hill Education is a case in point. This side of the company created digital firsts 15 years ago (think of Primis) but then was allowed to graze as a cash cow when other priorities in the portfolio became more important. With Pearson now emerging as the unassailably dominant player in North American education, but the whole market suffering a hangover now that school spending cuts from 2009 are hitting spending with full force, McGraw-Hill has nowhere to go. Its overseas holdings are tiny, and mostly in Higher Education: Pearson is now getting considerable and sustaining returns from non-US markets which have taken a decade to create. Meanwhile McGraw seem at last, after constant strategic re-appraisal and constant changes of CEO (to the point where they are now run by the former veteran group CFO) to be heading in a digital first direction, launching really interesting environments like Campus and ensuring that all of their content is digital and licenced from the very beginning. Is this too late? We can only tell when markets recover, but outsiders might well think that US education was over-published. How things will consolidate (the assets are Harcourt Houghton Mifflin, McGraw and Kaplan) may be one of the outcomes of the Jana move.
McGraw’s latest announcements indicate 11% growth in income in the second quarter but a 5% drop in education revenues. Neither of these is in the least surprising, and may indicate some signs of recovery. But now the question has been asked, every piece of emerging evidence will be used to support a break-up theory. And now two points of caution for those prone to jump to conclusions: Teachers is not the same as the Ontario Municipal workers pension fund which co-owns Cengage with Apax, and the David McGraw who is CFO of Teachers is …no relation. Now that the News of the World is closed and hacking has ceased you will just have to take my word for it!
Jun
12
Cloud Lucky Seven
Filed Under B2B, Blog, eBook, Education, eLearning, healthcare, Industry Analysis, internet, mobile content, Publishing, STM, Thomson, Uncategorized, Workflow | Leave a Comment
We have been doing Desert Island Discs in my family. For non-UK readers, this refers to a radio programme which for some 50 years has asked a guest each week to nominate 8 discs they would like to be washed up on a desert island with – and why. My sister, yanking us all back to our first wind-up gramophone of circa 1952, nominated Guy Mitchell singing “Cloud Lucky Seven”. You can find it on YouTube: a powerful demonstration of why it was necessary to invent Elvis Presley. But also a reminder, as I baked in 98 Fahrenheit New York this week under pitiless, cloudless skies, that it is often the case, once something has been invented, that it is necessary to discover it. And as Presley discovered in the ambient music of his culture what had been there in black and rhythm and blues for generations, so Steve Jobs announced the rediscovery of something very familiar to all of us, and rebranded it iCloud. It is very clever, this rediscovery, and often hugely successful.
Which is a natural segue to Steve Jobs and iCloud, a rediscovery so dramatic that a whole generation will grow up thinking that this great marketeer invented remote storage, despite the fact that everyday life, from Googlemail to Salesforce.com, would be unthinkable without remote storage, and that our future as information processors has nothing to do with local storage. But the real significance of the iCloud announcement is that it marks the end of the beginning of the end for personal computing. In 1981, the IBM PC enabled people like me to get into ePublishing by the fact of putting a real computer on every desk. In 2008 the PCs on desktops across the globe passed 1 Billion, but they will never sell another billion. We all know that after years of talking about the “thin client” environment, the time has now come to hold our programming and storage remotely, and carry around the lightest and slightest of interfacing technologies. Three years ago that was the notebook: since early 2010 it has been the tablet. The earth has truly moved.
But at the heart of all of this there is a contradiction. Despite all the things that came with the PC to make things easier for us (the mouse, the GUI – graphical user interface – the desktop, the floppy disc and the CD-ROM) we were aware that we were doing “proper” computing. Those like me who bought the BBC Micro and failed to teach themselves Basic programming in the early 1980s at least recognized that they were working, at a fixed place and in an office, in a very traditional way. In order to overcome the bandwidth problems of dial-up networking, we rapidly accelerated local storage – a brilliant man called Bela Hatvany walked into my office at Thomson’s Eurolex in 1984, showed me a silver disc, and proceeded to load the European Court of Justice judgements on it. So now we could carry storage around, or send it out to customers from the warehouse, packed like the book products we were familiar with, and pretend that the world had not moved at all. But it had at least begun, and this exposes the contradiction: if the tablet is to be our access to the Cloud, when can we expect the tablet to have all of the functionality we associate with desktop computing, as well as all of the on-the-move features we want to associate with work no longer fixed to workplaces. This has not happened – the executive in the conference room making notes on his iPad invariably has a laptop in his hotel bedroom – and it will never quite happen. Instead better functionality in the Cloud will plug us into commonplace desktop features, while the tablet itself concentrates on linking us with less effort to workplace solutions held in the Cloud. In this way we will attain a bi-focal view of the world: able in one aspect of the screen to use devices to communicate and run functions in networks, while replacing browsing by solutioning – using Apps to resolve content access into answers which can be framed and understood in the tablet context. And it is not Steve Jobs who is entirely driving this: it is the overloaded, overheated world of content itself that dictates that we cannot any longer, to use the popular metaphor, drink from the fire hose. And the corollary of all of this is that native Internet backbone becomes ever more important, at the expense of web services sitting on top of it. How soon before we click on a Cloud Services dashboard?
And as Mr Jobs claimed the Cloud, two other announcements last week suggested the future battlegrounds in those content sectors. In the first, FT.com announced its own app (and, surely co-incidentally, Apple announced a lightening of regulations for publishers, though not the full deal in terms of allowing content vendors to get fundamental information on users). The FT position is admirable. It supports an Apple App available through iTunes. At the same time it supports an app downloadable from the FT website which can be used in any tablet context, including the iPad. While a colleague commented that “a US provincial paper would never have got away with this”, the announcement does show that the attempt by Apple to control and discipline the content marketplace may be beginning to waver. And it also demonstrates, of course, that the FT “gets it” in this generation in a way that it did not in the past, and that it is one of few players who really do. We are on our way to the re-invention of the newspaper as a service: this is a non-stopping express, though since the windows are open (pun intended) some passengers may fall out on the curves.
As this column has said many times, surviving is about being big and getting bigger. So some were non-plussed at the Thomson Reuters announcement that their healthcare interests were to be sold by the end of the year (though they retain Web of Science and its related activities in their IP section). Yet this seems the inexorable consequence of their business logic. While healthcare is still a market full of buzz, with a huge information investment profile, Thomson Reuters were a trailing third in a market where solutions of the type described here as workflow are becoming vital. Without huge investment, or buying WK Health, great content like MicroMedex could not be fully optimized, though Thomson Healthcare have been making some good progress with care provider contracting. As a result of the divestment (and note the wonderful history of Thomson divestments as a guide to industry sentiment), a significant industry consolidation could take place, an existing player or a software vendor could reposition, or a new player with the investment needed could enter the US market. In current economic circumstances a private equity exit seems less likely than a strategic buyer with a healthy balance sheet. My bet in the past in these pages has been Springer, for which I have been soundly beaten around the head by all parties. We shall see.
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