This step will help both the companies gear up for the rising market of e-learning courseware and books. It may also lead to more U.S. students subscribing to e-courseware rather than purchasing physical books.
The merger would lead to creation of the second largest publisher of college textbooks and other higher-education materials in the United States with an estimated valuation at $5 billion. Pearson, with its market cap of $8.5 billion, will still lead the industry.
The merging companies will adopt the name of McGraw Hill (omitting the hyphen). It will be led by Cengage’s current CEO, Michael Hansen, while the the current head of McGraw-Hill, Dr. Nana Banerjee, will depart from the company.
The companies, together, are re-defining their publishing mode to be more digital centric. Cengage, in the past, has found this process full of challenges, as all the publishers do.
Cengage is now relying on sale of subscription of its digital courseware called Cengage Unlimited, which includes all its digital books, homeworks tools and study guides. In Feb, this year, they claimed to have sold 1 million subscriptions to their digital product since August 2018. The company reported $1.5 billion in revenue in the Fiscal year ending March 2019.
McGraw-Hill reported revenue of $1.6 billion in the same period. Forty-two percent of its revenue came from its higher education business, thirty-five percent from its K-12 business, while the rest is from internatinal and professional makets.
After the year 2013, when Apollo Global Management, a private equity firm, bought McGraw-Hill, it invested $700 million till the year 2017 to ugrade the company’s e-leraning offering. The investment was made in activites including acqusition of Redbird Advanced Learning, a K-12 Math, reading and writing curriculum provider, Area9, an adaptive learning technology, and ALEKS, an adaptive e-Math program that work, as reported by Telegraph.
Hensen claims that the merger will save $300 million in the next three years, with the help of a simiplified operations and cost-structure. It will comprise of reduced labour cost, consolidated physical and digital infrastructure and operations. These savings will be utilized to make college textbooks affordable.