Saba, SumTotal Lead E-learning Merger Frenzy

Two of the biggest pure plays in e-learning are getting bigger. On October 6, Saba said it would acquire Centra Software in a $60 million cash and stock transaction that is expected to close in January. The news came just two days after SumTotal Systems closed a $48 million acquisition of Pathlore Software first announced in August.

    The deals are two of the largest to date in an industry awash with mergers and acquisitions. Suppliers are broadening their product offerings to gain clout with clients who want a variety of integrated training and learning management products.

    There’s another reason for merger activity. E-learning vendors are expanding to provide entire learning management suites to better position themselves against larger enterprise content management vendors and IT infrastructure powerhouses such as IBM and Oracle that are circling the market niche, says Claire Schooley, senior analyst at Forrester Research. Unlike large vendors, “the little guys can’t scale internationally, they can’t afford (to offer) the multiple modules and keep upgrading them all the time—it’s too much,” Schooley says. “That’s why we have this consolidation happening.”

    If Saba’s offer for Centra goes through, some industry analysts say the company will once again be virtually tied with SumTotal for the title of biggest stand-alone in the e-learning industry, a business that corporate learning analyst Bersin & Associates pegs at $9 billion in 2005. Once the merger with Centra is final, Saba will have 1,100 clients, including 50 in the Fortune 100, and a total user base of 11 million, according to Saba officials. With its acquisition of Pathlore complete, SumTotal has 1,500 clients, including 60 in the Fortune 100, and 17 million total users. Officials at Saba and SumTotal expect their companies to be profitable on revenue of close to $100 million each in fiscal 2006.

    By picking up Centra, a pioneer in virtual classroom software that had recently taken an unsuccessful turn into the Web conferencing business, Saba rounds out its product offerings and will be able to provide an enterprise-wide human capital management package. “Companies are tired of being integrators. They want things to be prepackaged and work together and one vendor to do it,” says Vicki Morris, Saba’s vice president of marketing.

    SumTotal and Pathlore were learning management system vendors, but the former was stronger in large enterprises and financial, technology and pharmaceutical industries, the latter in small and midmarket companies, and in health care and government, says SumTotal president Kevin Oakes. Together they have a stronger product story and balance sheet to present to potential clients looking to use learning management system tools throughout their supply chains, Oakes says.

    As for Oracle, IBM and other bigger competitors, Oakes isn’t worried. “Three or four years ago it looked like there would be more of a threat, and it hasn’t materialized,” he says. “We’re not the first thing they mention as a market they want to get into.”

Workforce Management, November 7, 2005, p. 12 — Subscribe Now!