What is it in business that brings out the worst of people when the subject of mergers and acquisitions raises its head? Initial reactions generally speaking tend to be negative and dominated by ‘bigger is badder’ prognostics that may or may not be accurate.
To date, much of the reaction to the US$ 95 million deal has been at best skeptical and at worst just plain bad. However, Nicole Engelbert, lead analyst of public sector technology at Datamonitor, the data analytic and forecasting provider for the tech sector, says the real issue here -- and possibly the one that could make this the ‘deal of the year’ - is how competitors react to the news.
Recent Blackboard Acquisitions
Let’s put this in perspective. On May 6, Blackboard announced that it had reached an agreement to buy ANGEL Learning in a deal worth US$ 95 million in cash and stock. But this is not the first time in the past few years that Blackboard, based in Washington DC, has ventured out into the market place to buy out competitors or solutions it believed would enhance its own educational suites.
In 2008, it announced the acquisition of the NTI Group (now California-based Blackboard Connect Inc), a SaaS provider of mass messaging and notification solutions for educational and government organizations.
More significantly perhaps in terms of this recent announcement was the acquisition of WebCT in 2006. It is this deal, and the aftermath that has prompted much of the negative comment regarding the ANGEL deal.
At the time many educational institutions were running WEbCT. Many also say that following its acquisition by Blackboard development and technical support for the product almost disappeared.
Now, many current ANGEL users fear that Blackboard’s takeover will create untold difficulties -- not to mention expense -- with platform switching, especially as many institutions have only recently signed-up to three year contracts with ANGEL.
ANGEL Commitments Guaranteed
However, Michael L. Chasen, Blackboard’s president and chief executive, told the ANGEL User’s Conference (AUC) in Chicago on May 14 that the company learned from that acquisition and promised that this time it would be different.
Specifically, he has committed to two actions to reassure ANGEL clients:
- Ray Henderson, former Number 2 with ANGEL will be running Blackboard’s eLearning division. Once the deal is completed later this month Henderson will be installed as President of Blackboard Learn, and will have responsibility for product development, support and services overseeing both ANGEL’s and Blackboard’s eLearning products.
- Blackboard will honor all ANGEL contract commitments, and release two more versions of the software including a bridge to an eventual Blackboard product incorporating Angel features.
Deal Of The Year?
This is where Nicole Engelbert says that this could be the LMS deal of the year. If Blackboard has, in fact learned from the WebCT deal, then the issue is not going to be how the newly constituted Blackboard performs, but how its competitors react.
Blackboard even in the current economic climate is performing well with its financial results for the first quarter, posting a narrower loss of US$ 37,000 compared with a loss of US$ 4.4 million in the first quarter of 2008.
Reduction in Market Players
In this scenario, Engelbert says there are thee important issues to watch out for. The first issue that the market will respond to, she says, is how the industry reacts to what superficially looks like a reduction in the number of players in the market.
However, while the breakdown of the number of vendors suggests that competition is shrinking, this does not take into account the emergence of strong commercial vendors and an extremely lively open source community.
For commercial vendors, hosted LMS solutions are already a growth area that is likely to expand as educational institutions become happier with SaaS solutions. With the demand for LMS solutions delivered like this, the uptake of Pearson eCollege, for example, will grow and encourage new players into the market.
On another level, the acquisition will force more institutions to look at open source products, expanding demand in the services market and even encouraging the development of proprietary solutions built on this.
In effect, Engelbert says with a little bit of foresight the Blackboard deal will stimulate rather than confine the market.
Integrating Customer Support
The second issue -- and one that is often overlooked in the push for bigger bangs for fewer bucks -- is that deals like this one are not all about competition and cash.
One of the benefits of the deal cited by Blackboard is that it will (it hopes) be able to internalize and scale ANGEL’s significant success in terms of customer service and support. ANGEL has developed a reputation in the market for knowing it customers not only by their names, but also by their unique sets of problems.
As a company only 10% the size of Blackboard it has developed a loyal customer base by doing this, reflected in the fact that as a company set up in 2000 for US$ 135,000, it was valued at US $95 million in the recent deal.
There are obvious difficulties in scaling very small to very large, but maintaining intimate customer support is a stated Blackboard objective with obvious rewards, not least of which is reassuring current ANGEL clients that this really is a good move.
New Product Development
The third issue that Engelbert identifies as significant for the market is the potential for the development of new products. And again, Blackboard has been very quick to identify three particular goals following the acquisition:
- Commitment to continuing the three year support policy announced earlier this year for both Angel LMS 7.3 and Angel LMS 7.4.
- Coordinated release of LMS 7.4, meaning they are helping early adopting clients for a successful back to school launch later this year.
- Integrate ANGEL and Blackboard (and WebCT) together as part of Project NG (Next Generation eLearning solution) in a single suite and then evolving it to meet the future needs of colleges and universities.
This should reassure new clients as it appears the two distinct products will evolve into one ensuring that the acquired solution does not simply fade away.
The acquisition of ANGEL, Englebert says, was not about buying market share, but accelerating the development of next level solutions. In this respect, for all players in the LMS market to develop new solutions considerable investment will have to be made. In the case of Blackboard, it was made through this acquisition.
So will the deal achieve stated objectives, will current clients be reassured that it's not such a bad move and will it be the acquisition story of the year as Engelbert and Datamonitor believe it will?
Only time will tell, but there should be indications of how it is working sooner rather than later.