UPDATE: In the section on ‘Cash Cow vs. Growth Potential’, my choice of words could have caused misunderstanding. I did not mean to equate Operating Income with Cash Flow, and my choice of the word ‘cash’ in this section should really have been ‘income’, as my analysis was obviously based on Operating Income. I have made this correction below. My apologies for any misunderstanding.
Consider the recent news this summer that private equity firms have agreed to acquire both SunGard Higher Education (SGHE) and Blackboard in separate deals:
- Two market leaders in technology solutions for education,
- both generating revenues of several hundred million dollars per year,
- both business strategies at risk due to eroding market share in their core business since 2007,
- both facing challenges to integrate product lines and offer a clear road map for customers,
- and both sold to private equity firms for more than $1.6B.
SunGard Higher Education (SGHE) and Blackboard – brothers in arms.
At first glance, there are some strong similarities between the acquisition perspectives of both market leaders, but if you look deeper, the differences provide a good insight into the future of technology markets for higher education. These differences can explain why the ERP market seems to be consolidating with fewer choices while the LMS and educational technology market seems to be expanding with more choices.
Cash Cow Income Machine vs. Growth Potential
During research for this post, I was surprised to find out how much cash income that SGHE generates and how close Blackboard has come to SGHE’s revenue numbers. While Blackboard has seen its revenue increase due to corporate acquisitions of its own, it has only had a combined operating income of $26M over the past 3 years. In that same time, SGHE has seen its revenue decrease by almost 10%, but it has had a combined operating income of $399M.
It is somewhat difficult to compare the financials of the two companies, as they employ different accounting methods, so use the following table to see the big picture rather than the details. I have attempted to show total revenue (numbers are fairly solid) and operating income (not as solid), while ignoring provisions for income taxes. This data is based on SunGard’s annual report for 2010 (p. 36 as printed) and Blackboard’s annual report for 2010 (p. 26 as printed).
