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We Don’t Need No (Traditional) Education

Major US education merger

Image source: ESB Professional, FocusStocker, lzf, voyata - Shutterstock

What's going on?

McGraw-Hill Education and Cengage, two of the world’s largest publishers of college textbooks, announced plans to merge on Wednesday, turning up the heat in an already fiercely competitive industry.

What does this mean?

The deal, provided it receives regulatory approval, would create the second-largest educational content provider in the US – and one keen to shift more towards online education. The combined company would make around $3 billion of annual sales and, while not publicly listed, would be worth around $5 billion. One key reason for the merger, as usual, is the prospect of synergies – with cost savings of $300 million predicted.

Why should I care?

For markets: Take a laptop to the library.

Traditional textbook publishers have had a torrid time in recent years, thanks to a changing educational landscape that’s seen learners increasingly spurn traditional textbooks in favor of cheaper online resources. Those textbooks make up roughly half of McGraw-Hill’s sales; hence its desire to use the money it saves from the merger to expand its digital offering. UK-based market leader Pearson is in a similar position: it’s spent the last decade selling off non-core brands like Penguin Books, The Economist, and the Financial Times in its own drive to double down on education. Pearson’s now finally managed to halt years of revenue declines – but its stock price has still fallen 14% this year.

The bigger picture: School’s out for investors.

Strong US college enrolments are obviously key for education companies, given incoming students bring with them a wad of cash to splash on course textbooks. The 2% decline in fall 2018 enrolments is therefore bad news for the industry. What’s more, it’s possible that ongoing global trade tensions may be dissuading some international students from studying abroad.

Originally posted as part of the Finimize daily email.

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