Higher Education Knews: Wiley Acquires Knewton

knewton

Following last week’s big yet long-awaited news of the intended merger between higher education giants Cengage and McGraw-Hill, this week has started with a more surprising announcement that Wiley is acquiring Knewton, for an undisclosed sum.

11 year old Knewton has been a prominent player in the edtech space, raising more than $180m of venture funding.  Recently the company has pivoted to combining its adaptive technology with OER in the Alta platform, with courses costing $39.95 or alternatively $9.95 per month.  This platform addresses the fundamental needs of outcomes and affordability in education, according to Brian Napack, CEO of Wiley and Chief Knerd Brian Kibby.

“Driving outcomes at an affordable price”

This is good news for students and further evidence that the higher education publishing industry is clearly transforming to providing affordable solutions, with lower priced subscription models.  In so doing this also offers a path to transformation and growth for the industry, through digital offerings and new business models.

Presumably Wiley could have licensed the technology from Knewton.  Likewise, Knewton could have operated more freely as an independent company in disrupting the market. Presumably the two parties concluded they can either move faster, or operate at a lower cost, or get a higher mutual commitment, or realise a more attractive financial profile by means of an acquisition rather than a partnership.  This does look like a win-win for the two companies.

In the meantime, all key industry players in higher education publishing have access to good adaptive technology, some in-house (such as McGraw-Hill) and some licensed (such as Wiley pre-transaction).  This move bolsters Wiley’s in-house capabilities. It’s interesting to note that Pearson, who was an investor in Knewton, decided to phase out their technology two years ago.

Both transactions, Cengage-McGraw-Hill and Wiley-Knewton, are good news for students looking for affordable outcomes, and positive steps in the transformation of the higher education publishing industry.  In my view, the broader scope of the unlimited subscription that can be offered by Cengage-McGraw-Hill, coupled with the funding potential that can be untapped through their cost synergy program, would suggest that that transaction has the higher transformative potential to the market of the two deals.  It will be fascinating to track adoptions and usage of the various subscription models and the learner outcomes enabled by those platforms in the coming years to see what’s really working for the learner.

Good luck to Wiley and Knewton in making a success of this deal!

What to expect from the Cengage McGraw-Hill merger?

cengage

The big news in educational publishing last week was the announcement of the intended all-stock merger between Cengage and McGraw-Hill.  The companies expect to achieve regulatory clearance by the end of Q1/2020 and the combined entity will operate under the name McGraw Hill.  With pro forma revenues of $3.2bn, the new combined entity will be a strong challenger to market leader Pearson in the higher education space (total revenues of $5.4bn in 2018).

“Self-inflicted vicious cycle of decline in higher education”

Higher education publishing has been stuck in a self-inflicted vicious cycle of decline over the last decade, driven by lack of affordability.  Higher prices have encouraged rental and re-use models, have promoted the growth of Open Educational Resources and have also driven growth in non-consumption of learning resources.  Publishers have tried to compensate the market decline by further increasing prices.  Apart from the poor service to students, this has also taken its toll on higher education publishers with Cengage losing $2m on sales of $1.5bn in the year to March 2018 and McGraw-Hill losing $160m on sales of $1.7bn in the last book year.

Tertiary education about the deal

In their announcement, management cites three main reasons for the deal:

  1. Revenue growth, due to higher sales coverage, rolling out of the “unlimited subscription” model, complementary offerings in K-12 and international sales growth (especially Australia, China, India and the Middle East)
  2. Cost synergies, estimated at $300m annualized
  3. Enhanced financial profile, with a better balance sheet supporting the adoption of recurring models and growth in adjacent markets.

Gains for shareholders and students

The biggest winners in this deal are likely to be the shareholders.  Imagine the company might (eventually) be worth something like 13-17 times earnings (see Pearson), then with $300m of annualized savings, there’s arguably a potential cost synergy value of about $4-5bn, minus costs of maybe $300m to capture (my own unvalidated ballpark estimate).

Students should also be winners from this deal, as it enables the rolling out of the unlimited subscription model, alleviating the financial pressures of buying learning materials and at the same time increasing access and insights.

In the short term I think it’s likely that Pearson will be a winner from this deal too, as the people impact of the transaction rocks the boat at Cengage & McGraw-Hill, also opening up the talent pool to Pearson.  Sales at Pearson are likely to benefit from portfolio rationalization at the combination as well.

Pains for employees and suppliers

Part of the pain from the deal is likely to be felt in the organization.  Imagine a scenario whereby 1/3 of the $300m cost savings might be realized through reducing duplication in the organization through redundancies.  This might be of the order of 1500 jobs on the line particularly in US Higher Education and International segments where duplication is likely to be the highest.  There will of course also be anguish caused by the uncertainty the deal brings.

The second area where much of the pain is likely to be felt is with suppliers: authors, printers, tech providers, landlords and so on, maybe to  the tune of $200m per year, as duplication is removed and the higher purchasing power is executed.  (In some areas such as learning design skills or printing, this will likely have a knock-on benefit for Pearson, whose bargaining power in the market will also increase with this deal).

Watch this space closely

There are three areas I would track very carefully in the next few years if I were a shareholder in the new entity:

  1. Deliver on the cost savings. In my view the $300m of stated cost synergies should be eminently achievable.  This should be a high value, low risk lever and management should be very well capable of making it happen.  This should as management states be realizable within 3 years of closing the transaction and will underpin both earnings as well as the transformation in the business model.
  2. Roll out the unlimited subscription model. This is in my view the key reason to do this deal. The new entity can create a more attractive unlimited subscription package for students (superior content and platform) but will need the cost synergies to pay for the investment and model shift. Solving the problem of access and affordability to students in higher education is the critical path for this company.  Making this happen is in my view going to be the key driver of the future prospects of the business, hence also the multiple that can be achieved on exit.  I do think there will be revenue opportunities in the other areas stated in the announcement, but I believe this is by far the key initiative. Revenues in the next few years are going to be difficult to read, with portfolio realignment, new adoptions and the roll-out of new models.  Short-term this might reflect negatively in the financials, hence the cost synergies will be required to financially enable this transformation.  I estimate this to be a high value, medium risk lever.
  3. Critically evaluate investments in new areas. In the short term, in my view, the synergies and shift to the unlimited subscription model should be strongly prioritized, from a financial and management perspective.  I would be wary of too many activities in new countries or new segments for this company at this time, bringing more complexity and cost and distracting from the core transformation.  Where I would want to see full momentum on the savings and model shift,  I would at this time want to see a critical approach to things that increase the complexity of the business.

Overall I think this deal makes a lot of sense and is being done for the right reasons.  Good luck to the team in making it happen.

Footnote: I am not an investor in either entity nor the future entity, I am not a financial advisor, and I have not in any way been involved in this intended transaction.

Edtech: hotter than the Acropolis in August

At the beginning of the week I was in Athens celebrating my birthday. Let’s just say I was born in the 1970s :). I’ve always had an interest in Greek mythology (it was a good choice to read Mythos on the way) and as a man of learning, I wanted to see more of the homeland of Socrates, Plato and Aristotle.  An inspiring and thoroughly enjoyable visit!

News broke of the sale for $1.75B of plagiarism-checker Turnitin, more than the total amount that all edtech startups raised in 2018 ($1.45B) and also one of the biggest edtech deals this decade, beating LinkedIn’s purchase of Lynda, but smaller than the Ellucian deal.  This underlines the growing importance of technology in learning markets. In the meantime, Sanoma Learning is, with the intended acquisition of Iddink Group, emerging as Europe’s leading edtech company, with a couple of hundred million euros of digital/multichannel revenues and more than 300 tech employees.  It’s a hot place to be.  Hotter than the Acropolis in August!

The immediate focus back at the office was the steering of our High Five program.  At the beginning of March we went live with our Next Gen EdTech Team, where we have created one technology team for the whole of Sanoma Learning. It was good to see we are well on track to launch Kampus in Finland & Sweden, and Bingel in The Netherlands.  Overall I feel we are making great leaps forward with High Five!

Then we spent time with the Iddink team in preparing ourselves for finalizing the intended transaction.  There’s a good click between us, which is a great starting point.

At the end of the week we did the monthly business reviews with each of the units. We’re deploying a new stage-gated investment process into new courses and had a couple of very interesting cases from Poland. I was highly enthusiastic about how the team is approaching this and really appreciated to be able to spend time with them to learn more.  Well done!

Looking forward >>

Teachers value blended learning

In 2018, we carried out our SLIF survey (Sanoma Learning Impact Framework) for the fourth time. In total 7594 teachers answered the online survey, which was carried out in all our markets: Belgium, Finland, The Netherlands, Poland, and Sweden. The main purpose of SLIF is to investigate the impact of published materials on learning. This time we focused on blended learning materials.

We are happy to observe that digital materials are gaining ground in learning. The most important benefit of digital according to teachers is engagement. 68% of the survey respondents felt that digital materials are more engaging for their pupils/students than printed materials. This is easy to believe: for example Bingel with its visually appealing avatar characters which the pupils can adapt with pingping they earn from doing exercises has proved to be very engaging and motivating.

Ultimately we want to offer learning materials that lead to improved learning outcomes. When we asked which factors have the highest influence on learning outcomes, engagement was mentioned as the most important factor, followed by variation in learning activities, individual coaching, and timely feedback to pupils.

It is worth noting that the second most important factor, variation in learning activities, was also considered as something which is better achieved in the blended model. 64% of respondents thought that digital learning materials are better for providing variation than print materials. Again, this is easy to understand. Digital learning materials include video, audio, animations, interactive exercises, instant feedback, and other features obviously missing from printed materials.

Figure 1 summarizes nicely the teachers’ attitude towards digital learning materials. We can see that only 27% of teachers use only printed materials. Whilst it is significantly more than the amount of teachers using only digital materials (3%), we can see that the majority of teachers are somewhere in between, adopting the blended learning approach: 17% apply half digital / half print approach, and 44% primarily print with some digital components.

Figure 1

Figure 1. Teachers would like to use more digital learning materials

It’s interesting to compare the current state of teachers’ materials with their ideal situation. At the moment 17% of the teachers use half digital / half print materials. However, 38% would prefer to have this combination. The difference in print-only teaching is even more pronounced with 27% of teachers currently teaching with print only, but a mere 1% would like to do so also in the future.  This is firm evidence that demand for digital should grow in the coming years.

“Demand for digital in the blended mix to grow”

Whilst teachers want more digital, as our survey clearly shows, it is worth emphasizing that virtually no-one of our respondents would like to teach with digital-only materials. Currently 3% are doing so, but it is not seen as the optimal state by anybody. What to make of this? Our answer: blended learning models work best.

Santtu Toivonen, Lead Insight Manager, Sanoma Pro

John Martin, CEO, Sanoma Learning

Strongest result in our history so far at Sanoma Learning

We always win

Last week Sanoma announced the financial results for 2018, which were very good with improved operational profits across all three divisions.

“Best result ever at Sanoma Learning”

For Sanoma Learning this was the best result in our history so far, with profitability increasing by 10% from € 55.6M in 2017 to € 61.2M in 2018.  This very much helps to underpin the major investments we are making in the digital transformation.

“Win locally”

I’m especially proud that a large part of this very good performance came from gains in market share in many of our countries, demonstrating that our learning materials are appreciated by teachers and pupils and that we are competitive in the market. Our Learning Impact survey showed that teachers believe our solutions support them in reaching their learning objectives (92%), enable them in their workflow (87%) and help in student engagement (83%). This really highlights the important work we are doing in enabling teachers in developing the talents of our children.

“Working together across borders”

A second driver of the good results in 2018 was the High Five program where we are working together on investing in the next generation of Sanoma Learning, and funding that journey by creating leaner processes on a number of back-office activities. This gave a solid underpinning to the results in 2018, and we will see further benefits in 2019.

“New growth through acquisitions”

In addition we announced at the end of 2018 our intention to acquire Iddink Group which  will increase the size of Sanoma Learning by about half going forward.  Iddink will help us to accelerate the digital transformation of secondary education in The Netherlands, will extend our role in Belgium and will bring us a new position and new opportunities in Spain. During the course of 2019 we expect to become the owner of Iddink.

Thank you!

I very much want to thank the teachers and pupils who work with our courses for your trust in us. I would also like to thank our teams for the good work in 2018. I know we asked a lot of you and I appreciate the important work we did together.   This has truly been a team effort!

Looking forward >>

We have a big year ahead of us not least with the launch of new platform Kampus in Finland and Sweden, Bingel in The Netherlands, new reforms in Upper Secondary Education in Poland and other reforms in Belgium.  We will be working hard to progress the High Five Program. And we expect to finalize the transaction with Iddink and further develop the business.

We have a strong plan for the coming years and are highly committed to making a positive impact on learning and teaching.  Looking forward >>

Accelerating the digital transformation of education. Sanoma Learning acquires Iddink Group, a leading educational platform and service provider.

Sanoma Iddink

Earlier this week we announced that Sanoma Learning intends to acquire Iddink Group, a leading educational platform and service provider.

Pupils and teachers especially appreciate “blended learning solutions”: mashing up physical and digital approaches to inspire learning.  However the digital element of blended learning in schools needs a boost.

Together, we want to accelerate the digital transformation of education

Together with Iddink and in close cooperation with schools and other partners in the market, we want to accelerate the digital transformation of education. Sanoma Learning invests heavily each and every year in new blended learning solutions.  Iddink Group is also a frontrunner on the digital transformation, with amongst others the leading platforms Magister and Eduarte and intelligence service TIG.

Personalised Learning

Thanks to digital, we will in the future be able to serve pupils with tailored learning materials which play seamlessly on learning platforms in schools.  We believe this will enable personalisation, increase the motivation of pupils, and support the work of the teacher. Positive news for learning and teaching!

Iddink Group and Malmberg & VAN IN will be independent units Sanoma Learning. Naturally, Iddink Group will continue to collaborate closely with other publishers; future solutions and platforms we create will be available and open for the entire market.  This is what schools are asking of us and what will benefit pupils and teachers the most.  Open platforms, populated and integrated with great and up-to-date blended learning content, available to all.  Malmberg and VAN IN will of course, in turn, also continue to cooperate with other educational service providers.

I’m really excited about this development, which I think is going to help us to make a great leap forward in serving schools, especially as we go through the digital transformation together!

Looking forward >>

At the d.school Stanford

High Five!

We’re currently executing the “High Five” program at Sanoma Learning: working together across the borders of the five national units to build one integrated European company.

We serve about 10m pupils and 1m teachers in some of the World’s best performing education systems (Finland, The Netherlands, Belgium, Poland and Sweden). Our customers especially appreciate “blended learning solutions”: mashing up physical and digital approaches to inspire learning.  High Five is really about organizing ourselves to be able to create and provide impactful blended learning solutions to schools in the most effective way.

We’ve divided the program into three areas:

  • Investing in the future (our approach to digital applications, courses, data and technology)
  • Funding the journey (improving our procurement processes)
  • Enabling the transformation (making sure our support processes are fit for the digital transformation).
kirsi and winfried

Kirsi Harra-Vauhkonen (MD of Sanoma Pro in Finland & CPO Secondary Education) and Winfried Mortelmans (MD of Van In in Belgium & CPO Primary Education) discussing High Five with the team in Helsinki.

The last weeks we’ve been travelling with the team to all of the countries to engage further with our people as we move forward with High Five.  I have experienced this as an inspiring period, bringing a lot of new energy, and I feel we really have a good momentum with High Five!

I’d like to thank the teams for all the excellent work in co-creating and executing High Five so far and to all our people who joined us in the roadshow.  Very much appreciated and well done!

Looking forward >>

high five logo