Yesterday Skillsoft (NASDAQ: SKIL) announced a deal to acquire the NETg division of Thomson for $285M. I call it the “flipside” because NETg makes their money selling off-the-shelf e-learning courseware which is at the opposite end of the spectrum from NanoLearning, which is the more democratic version where anybody can create e-learning courseware. Just for fun, lets look at the financials of this deal.
To start with Skillsoft has been moving sideways for a while with no revenue growth, but they’re putting maybe 6% to the bottom line. Not bad, but it’s hard to prop up a P/E of 30 when you’re not growing. The market recognizes this and rewards this non-performance with a pretty unremarkable stock price.
Skillsoft revenues are around $220M and they’re going to pay $285M for NETg. That’s gutsy! They’ve got $70M in cash, and they’re going to borrow $180M to buy this company. Plus NETg revenues have been declining solidly over the past several years from a peak of over $400M down to $160M today. If nothing else, the folks at Thomson are shrewd businessmen and are probably happy to shed this business unit at what looks like a premium. Based upon the hit that Skillsoft stock took today, I’d say the market is not too happy with them paying a premium like this for a shrinking business unit.
Obviously it’s a big risk for Skillsoft; perhaps the biggest in their company’s history. We will see if it pays off.
Lee Kraus said
Nice analysis. I think this says a lot about the corporate elearning market. This supports the idea that corporations are probably still searching for more effective approaches to elearning. I don’t knock off-the-shelf content, but as custom content creation gets easier, the end result of the training has to be easier.
Lee Kraus said