“We’re very pleased to acquire the well-respected assets of HM College, which are highly complementary to our existing business,” said Ronald Dunn, President and CEO of Cengage Learning. “We look forward to combining the people, products and publishing programs of HM College and Cengage Learning to expand and enhance our range of services for students, instructors and institutions in the higher education market.”The divestiture will enable Houghton Mifflin to focus on its K-12 education products but it will undoubtedly strengthen Cengage's position in College. How valuable the marketing agreement will be is unknown although selling College text into the high school market has been growing over the past five years.
Importantly, Cengage has demonstrated that despite the huge price paid for the business they are able to go back to the well (bankers) to make this acquisition. Their investors recognise that the base business is doing well and this acquisition represents an opportunity to strengthen their market position. Perhaps this is at the expense of Houghton Mifflin whos banks announced last week that they could not sell their loan syndication.
On a related note, Cengage presented a brief overview of their first quarter performance and they reported consolidated revenues of $650.1mm up 5.1% versus the same period last year. Operating Income of $247.1mm was up 10% (before allocations and amortization). Higher ed and International delivered strong performance with revenues up 7% and 13% respectively. The library division (Gale) under performed with revenues and operating income off 5.9%. During the conference call CEO Ron Dunn listed several areas where the company is focusing their attention. These include establishing their new leadership team, driving revenue growth, reorganization of international and merging higher ed and professional publishing.