Leading publishers responded to the trends we described earlier by strengthening their digital offerings and – in the case of McGraw-Hill Education and Cengage – by proposing a merger in order to reduce costs and strengthen their economics.
Expanding Digital Offerings
Most of the leading publishers strengthened their digital and data analytics offerings in 2019, and have continued to do so into 2020.
Elsevier was relatively quiet in the past 12 months. The only two deals of notice were the acquisitions of Parity Computing in July 2019 and Authess, acquired in March 2020 (in addition to 3D4Medical, a Dublin-based company specialized in developing apps in the medical and health fields for professional reference). Parity Computing is a company using artificial intelligence (AI) to provide entity resolution, profiling and recommendations for STM content and applications in research. These capabilities can be used to resolve ambiguities in citations and attributions, strengthening SCOPUS’s offerings in data analytics and decision support. Authess is a company specializing in analyzing the skills and competencies of individuals; it is a natural fit with the medical and nursing courseware and textbooks in health and nursing education.
Springer Nature Group
SNG has been hobbled by its large debt, which has constrained its capacity to expand its role in data analytics through acquisitions. The company was well aware of the limits posed by debt and tried to raise new capital to lower debt through an IPO in early 2018. The failure of the IPO has continued to constrain SNG, which has limited itself in the past year to a number of non-equity partnerships. The company signed agreements with ResearchGate (March 2019), DrugPatentGate (April 2019), AI2 (July 2019), Digital Science (December 2019) and OpenAIRE (January 2020).
Wiley was also very active in the recent past, completing a number of data and digital acquisitions. The most notable are The Learning House (this deal closed in November 2018), a provider of online program management services; Knewton (closed in May 2019), an adaptive learning technology; Zyante, also known as zyBooks (closed July 2019), a publisher of computer and STEM education courseware, MThree Consulting (January 2020), a provider of training and hiring technology in tech disciplines working with several US, Canadian and UK universities (MThree claims to partner with OSU, Fordham, NYU, Columbia, the University of Chicago, Case Western, McGill, University of Toronto and Université de Montreal, among others); and Madgex (March 2020), a technology company specializing in career and recruiting services. In addition, the company disclosed that it had also closed two “immaterial” acquisitions, although it did not give any further detail.
Taylor & Francis
Taylor & Francis, an Informa company, announced in January 2020 the most important deal in research in the past 12 months with the acquisition of F1000 Research, the publishing platform founded by Vitek Tracz as part of a broader set of companies offering publishing services to the academic community.
The past 12 months have seen turmoil at Pearson, with the announcement of the departure in 2020 first of CEO John Fallon and then of CFO Coram Williams. Nonetheless, in November 2019, Pearson acquired Lumerit, a provider of digital courses, and in January 2020 the adaptive learning technology of Smart Sparrow. Most important, as we mentioned earlier, in July, Pearson announced its “Digital First” strategy that effectively represents the beginning of the end for most print textbooks.
The largest development in the courseware market over the last year was the proposed and ultimately failed merger between the second and third largest US higher education course publishers. In May 2019, Cengage and McGraw-Hill Education announced that they intended to merge. The logic behind the deal was to reduce costs, as the two companies expected to increase their EBITDA by $300 million through cost savings. The expected savings were equal to 47% of the last reported Adj. EBITDA of the two companies before the deal was announced ($633.8 million). In other words, the two companies expected to lift their EBITDA by about 50% (and perhaps more, as often management teams tend to articulate conservative estimates).
The merger encountered, from the very beginning, strong opposition from many constituencies (as predicted in the Landscape Analysis), both because of the large market share that the new company would have had and because it would have led to the reduction of competition and diversity in data analytics.
SPARC was joined by others (APLU, NACS, SCONUL, to cite a few) in opposing the deal, and submitted a detailed antitrust filing to the Department of Justice in August 2019. On March 10th, 2020, House Antitrust Subcommittee Chair David N. Cicilline and House Consumer Protection and Commerce Chair Jan Schakowsky sent on the 10th March 2020 a letter to the Department of Justice’ s Antitrust Division, urging it to closely scrutinize the deal (a similar letter was sent on April 28th, 2020 by Senators Feinstein, Blumenthal, Durbin, Smith, Booker and Hirono). As opposition grew, the two companies pushed back the closing deadline from February 1st to May 1st, 2020. Finally, on May 4th, 2020, the two companies announced that they would abandon the deal because the conditions imposed by the Department of Justice would make the deal uneconomical.