In recent days Pearson, the world’s largest education company, has been in the news due to plans to sell the Financial Times and talks to sell its 50% stake in the Economist Group. It’s been estimated that these divestments will yield $ 1.5 bn net proceeds. Pearson will focus fully on education in the future.
Pearson expects growing and sustained demand for education, particularly driven by an emerging middle class in international markets and the digital transformation. The opportunity is to enable greater access, better affordability and improved achievement. They are working on transforming their business by building positions in fast-growing economies, shifting to digital and services, and promising to deliver measurably improved learning outcomes. With annual global spending on education estimated to be about $ 4.5 tn, Pearson sees space to grow current revenues of about $ 7.75 bn.
What could this mean for Pearson?
1. More focused strategy
“You’re a global education company or you’re a global journalism company — both great things to be, but it’s hard to ride both horses equally well,” John Fallon, CEO of Pearson, said after the sale of the FT was announced. “We’ve reached an inflection point in media, driven by the explosive growth of mobile and social. In this new environment, the best way to ensure the FT’s journalistic and commercial success is for it to be part of a global, digital news company.” The leadership and management of Pearson can now focus fully on the growth and transformation strategy of their education businesses: emerging markets (growth), digital and services (growth and transformation) and outcomes (transformation).
2. Focused leadership of execution
Pearson already has some attractive positions in emerging markets and has taken a leadership role in the industry on outcomes, but is arguably not (yet) a frontrunner on the digital transformation. All three of these pillars will require leadership and heavy investment in the coming years and will therefore likely benefit from an increasingly focused strategy. With a rich pool of talent and an excellent reputation the company should be better placed to focus on the transformation of the education business.
3. Faster growth
Given a stronger balance sheet, Pearson should be more favourably positioned to make further investments in organic growth and to acquire other companies in digital and services, and international markets. This should in principle lead to better growth prospects for the company and a higher valuation.
What could this mean for education markets?
Good for customers?
My view is that a successful Pearson should be good news for customers. Looking at the big picture, if Pearson is successful in enabling greater access, better affordability and improved achievement in education in countries across the globe, this must be a good thing for our people and planet. And their success will likely encourage new entrants and more innovation in the industry which should yield further benefits for customers too.
Good for employees?
I would imagine that this will be good news for employees with the skills and ambitions to support Pearson’s growth and transformation agenda and vice versa.
What about the competition?
If you’re a growing digital education or service business in an emerging market, are making a measurable impact on outcomes and looking for an exit, this is probably good news :-). However, if you are predominantly a print publisher in one of the markets where Pearson is currently strong, it’s likely you will have to raise the bar to stay competitive. It’s not easy to see a direct impact on a company like Sanoma Learning which is arguably further on the digital transformation and operates in different markets, although there could be increased competition for international opportunities in digital down the line.
Will these divestments secure Pearson’s leadership position in the industry?
At this time, the company’s position seems secure: they are global market leader, they have a good growth and transformation strategy brought into sharper focus, an improved balance sheet and competent leadership. However, with a large “legacy” business, complex operating model, new competition from agile startups and a less friendly regulatory environment, it’s not a home run. Keep an eye on McGraw-Hill Education – they’ve been making smart and agile steps in recent times too as they reposition themselves as a “learning science” company.
It will be fascinating to experience the dynamics in this industry in the coming years as the giants transform themselves, new giants such as Google and Microsoft build their positions and (edtech) ventures such as Udemy, Edmodo, Altschool and NetDragon disrupt the market. I’m interested to hear your views on this. Looking forward >>.