Pearson made an interesting acquisition yesterday. Their acquisition of eCollege continues their corporate foray into Student Information Systems and Course Management. Last year, Pearson acquired PowerSchool and Chancery Software yielding a very strong position in Student Information Systems for the K-12 market. Clearly, they like these learning infrastructure markets for several good reasons.
1. At present, they seem to be solid businesses with only a few competitors that are poised to grow at rates exceeding their traditional textbook businesses.
2. The acquired customer base brings them many new customers and brings them closer to the students (and parents) who use their instructional products. The information about these students and the ability to reach them with additional product offerings is not to be underestimated in this digital world.
3. As the range of course materials such as content modules, learning software, simulations, educational websites, etc. continues to grow, the value of the course infrastructure technology will increase as well as provide a strategic advantage for integration with their broad range of course materials.
Last week at the Digital Book conference in New York, several speakers agreed that college textbook publishers will look more and more like software publishers over the next ten years. The reasons for this transition will center on using technology to: 1. deliver appropriate content to the student when it is needed to solve homework problems and prepare for tests; 2. integrate traditional material with innovative simulations and learning modules available from communities like MERLOT; 3. add life to static published content by enabling further exploration via web links and domain specific search engines and content repositories.
Pearson is wise to acquire successful software and technology companies to give them the pockets of technical expertise that would take many years to develop within the company. While there may be some culture clashes, this strategy should serve Pearson well and position them to maintain or expand their leadership position in educational publishing.

Well, Thomson Learning has finally been sold (subject to rote “due diligence”) to private equity firms. Everyone figured it would be private equity firms that would make the purchase, partly because these firms are buying just about everything these days except your old underwear, and also because the higher education textbook market is so concentrated that even George Bush’s “I’ve never seen a merger I didn’t like” administration would have had trouble fobbing this one off. Too many children would have been left behind.

The big surprise was the price. A whopping $7.75 billion, over 3 times the annual sales of the division, and apparently roughly 15 times cash flow (see . The same article points out that “by comparison, the average cash flow multiple paid in leveraged buyouts of $500 million or more last year was around eight times cash flow, with media deals typically in the low-double digits, according to buyout industry statistics.” The price is also some 50% more than company officials originally stated they thought they could fob the division off for.

Would we say there’s a little too much cash out there looking for comfy homes? Or would we wonder why this Thomson division, much maligned by management when the sale was first announced, is suddenly as valuable as DaimlerChrysler? (http://www.nytimes.com/2007/05/15/automobiles/15chrysler-web.html)

I guess we’re stuck with Thomson’s overriding stated view that higher education just wasn’t getting with the program fast enough in an online, electronic sort of way, and so the division had to be jettisoned. (Although Thomson CEO Richard J. Harrington admitted after the sale announcement that the company had no complaints about the educational unit’s financial performance. Textbooks are, by and large, a high-margin product ).

On the other hand, memory serves to remind us that Thomson was previously determined in a fierce way to get the heck out of the news business, and now it’s about to merge with Reuters.

What I’m most cognizant of is that Thomson shares had been languishing in the mid-$30s for years before the announcement of the bold move to get rid of textbooks. Now those shares are in the $40s. A lot of senior Thomson executives have made a whole lot of cash from these recent maneuvers (not to mention the Thomson family). No senior Thomson executive was left behind (as for the the operating staff; it is not polite to ask).
(To glimpse the stock chart: