On July 7, Cengage Learning announced that it is consolidating its two business units into one streamlined operating group. The move brings together the company's Academic and Professional Group (APG) and Gale, its library/reference group, with the company's international group. Cengage is a global publishing and information services company with more than 5,000 employees, revenue of nearly $2 billion in sales, and a major player in the academic marketplace. The transition will begin immediately and is expected to be completed in September 2010.
Cengage is the new name of Thomson Learning, which was acquired by Apax Partners, a private equity investment group, and OMERS Capital Partners in 2007. Apax paid more than $7 billion for Thomson Learning, changed the company name to Cengage, brought in new management, and left the new company with a staggering $5.5 billion in debt. Since 2007, Cengage has continued to buy companies to complete its portfolio including the college division of Houghton Mifflin, a textbook publisher, in June 2008 and Questia Media, a subscription-based online information service, in February 2010. Ron Dunn and his management team are leading the company through this difficult economy and continuing to build and invest in new products and services.
I caught up with Dunn, the president and CEO of Cengage Learning, and Frank Menchaca, executive vice president of publishing, and had an opportunity to talk with them about the recent changes. As expected, both Dunn and Menchaca were very positive about the announcement of the streamlined operations and see this as a positive step. They believe that this focused operating structure will allow them to leverage the combined resources of Gale and APG to bridge the gap between the library and the classroom. Dunn feels that Cengage is in a unique position to leverage the expertise in creating, organizing, and distributing content with APG's understanding of teaching and learning styles. There is no question that Dunn sees this opportunity as a major advantage that the company holds over both ProQuest and EBSCO Publishing, two major competitors to the Gale unit.
On the surface Dunn and Menchaca make a clear and compelling argument that the streamlining is a brilliant strategy and one that gives them a clear advantage in the marketplace. They view this as a great business move. Centralizing all business, strategy, and product decisions makes Cengage a better global business. There is an opportunity here for real synergy. They firmly believe that they can mind the gap between the library and the classroom and that they are uniquely prepared by the nature of their many publishers and their experience in teaching to do so.
So what do librarians think about this move?
I talked to a number of librarians in the U.S. about their view of the streamlining. Jill Emery from the University of Texas library commented, "This restructuring will help Cengage better inform the publishing side of the demands and purchasing behavior of the academic market side. Too often there is a disconnect in many organizations."
At the University of Tulsa, Adrian Alexander, R.M. and Ida McFarlin Dean of the Library, offered this comment, "I am not sure there is ‘real synergy' here. I am not looking for another solution to bridging the so-called gap between the library and the classroom. That effort is more dependent on librarians, instructional technologists, and the teaching faculty making up their minds to collaborate than what a third-party technology/content vendor can bring to the party."
At a number of other institutions there was little comment as the announcement was just too new and few had thought about the impact.
However, I was able to talk to one of Gale's largest competitors. According to Simon Beale, senior vice president, global sales and training at ProQuest, "[T]his was a combination of Cengage's genuine desire to use their assets to greater effect in developing highly integrated offerings and the need to keep reducing costs."
From my own corporate experience, the streamlining has some elements of cost savings. One might say Cengage is attempting to kill two birds with one stone. Consider the fate of Ron Mobed, who joined Cengage as president of the Academic and Professional Group in October 2009 and then, in less than a year, was let go, along with Patrick C. Sommers, who joined Cengage Gale from Sirsi in October 2007. Neither officer has been in their positions long enough to make significant changes in their business units. It makes me think that streamlining might have been forced on them from outside forces.
I raised the issue of the $5 billion in debt with Dunn and asked how he sleeps at night knowing that he has a huge interest payment due each quarter. How do you compete on new product development with your major competitors on the Gale side when they have little debt? He assured me that the Cengage debt situation is under control and that he had no concerns or worries. Cengage is managing its debt and recently paid off or restructured some of its bonds. That is all well and good, but the fact remains that the company's cash flow is impacted by servicing the debt each year. Cengage's ability to invest or build new products is always going to be under pressure until the debt is retired.
Having worked and run public companies for the past 40 years, I am well aware of pressure that comes from the finance side of the house and the investment banks that hold the bonds. In fact, one has only to read the transcripts of the quarterly analysts' calls to see the tone and impact that having a large debt has on the ability to manage a company.
Cengage has a strategy of streamlining and pulling the assets closer together and the potential for synergy to bridge the gap between the library and the classroom. Letting a commercial vendor into that area is going to be a hard sell for many libraries. The library/classroom culture for the past 100 years has a well-identified gap. Librarians have tried working with faculty, but too often, there is a wall between these two groups. Cengage may have the tools to bridge this gap, and I wish them luck. At the same time, it needs to carefully watch its cash flow and manage the debt.
The library community needs strong dependable companies that are partners in the knowledge management and information services. Everyone wants to see healthy competition that gives libraries choices. Good luck to Dunn and his team at Cengage. The library community is rooting for you to win.
Links
http://www.cengage.com/press/release/?release_id=20100707.xml
http://www.cengage.com/investor/pdf/Third%20Quarter%20Report;%20Three%20and%20Nine%20Months%20Ended%20March%2031,%202010.pdf
http://www.cengage.com/investor/pdf/Annual%20Report%20For%20The%20Fiscal%20Year%20Ended%20June%2030%202009.pdf
"Cengage Learning Names Ron Mobed as President of Academic and Professional Group," Oct. 5, 2009: http://www.cengage.com/press/release/20091005.html
http://www.alacrastore.com/research/thomson-streetevents-Q3_2010_Cengage_Learning_Earnings_Conference_Call-T3099122
