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Megatrend #5: Consolidation
Consolidation is a strong global trend, as merger and acquisition
activity hits record levels. In 1998, mega-mergers in the financial
services, automotive production, pharmaceuticals and oil industries
drove the total volume of M&A to upwards of $1.7 trillion, or
not quite 20% of GDP. Technology-delivered training is being adopted
so quickly that by 2002, 55% of corporate training will take place
that way, up from approximately 20% today. These mergers happen for
both strategic and financial reasons. They open up new markets and
provide greater services to customers and leverage in research &
development and marketing functions. At the same, time, most seek to
reduce "overhead" costs, everything from top management to
back office jobs that can be, for example, more effectively
conducted using one merger partner's IT systems.
While consolidation used to be the hallmark of a mature industry,
this is no longer the case, particularly in technology, where small
start-up companies are acquired for technology and, as important,
talented people. In some cases, acquiring a competitor is faster and
easier than hiring and training scarce computer programmers, sales
people and executive management. The hiring and retention of human
capital is increasingly a priority for companies of all types.
Consolidation can also provide scale, and in the education
industry, scale matters. The most visible example of this is Apollo
Group, whose margins shot up from 2% in 1993 to nearly 20% in 1998
starting when revenues hit a critical mass of $100 million. Sylvan
Learning Systems is a second example, with margins (including pooled
acquisitions) expanding from 2% in 1993 to 15% in 1997. ITT
Educational Services is currently enjoying this phenomenon, as well
as Bright Horizons Family Solutions. This scale enables leverage on
R&D, curriculum development, sales efforts and SG&A. Scale
can be achieved through organic growth or acquisitions or both, and
(you can) expect consolidation in this sector for that reason.
A second driver of consolidation in this sector specifically is
the desire of large, well-capitalized companies to enter this
fast-growing and attractive industry. Mattel's pending acquisition
of The Learning Company is the most recent example of this
phenomenon hoping to expand on owned assets in the education arena.
Publishing, corporate and staffing services and other companies are
also buying into this sector.
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Impact of Consolidation on the
Education & Training Industry |
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Sector |
Impact |
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Early Education |
As parents shift their children to center-based care,
choosing providers with high-quality educational content and
brand names, we believe consolidation will finally come to the
highly fragmented child-care industry. |
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K-12 Education |
The challenge of developing an effective sales channel into
schools will be an asset and barrier to entry that will drive
consolidation in this segment. |
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Post-secondary |
The ability to access 'best-in-class' education from anywhere
at any time will challenge existing colleges and universities.
Look for more specialization and consolidation as a result. |
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Corporate Training |
The ability to offer a complete training solution to
corporations taking a more comprehensive and proactive approach
to training will encourage consolidation. |
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Consumer |
Competition for retail shelf space and consumer mind share
will drive consolidation and partnering in consumer products and
services. |
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Source: Merrill Lynch
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