Education-Technology Companies Get Go-Ahead to Merge

December 8, 2011, 3:05 pm

Higher-education software giants Datatel and SunGard Higher Education today announced plans to push forward with a merger after receiving clearance from the Department of Justice.

The two companies publicized the plans back in August, when the private-equity firm Hellman & Friedman LLC, which owns Datatel, said it would buy SunGard Higher Education for $1.775-billion. Now Datatel, under Hellman & Friedman, is seeking a $1.2-billion loan to finance the acquisition of SunGard, according to a Bloomberg article.

Trace Urdan, a financial analyst for the brokerage firm Wunderlich Securities, says this is a sensible merger that stands to strengthen both companies, but that it raises several issues for the college officials who buy the popular software packages for their campuses.

“Buyers are frustrated that there is this continual march towards consolidation in the industry,” Mr. Urdan said. “Historically buyers have loved Datatel, but maybe with this merger that will change.”

Ron Lang, chief executive of SunGard Higher Education, said in a statement that the merger will only help the companies better serve their customers.

“Our largely complementary products and services portfolios blend well, and our deep, shared commitment to our customers will continue to fuel the long-term relationships and innovative spirit we value so highly,” Mr. Lang said.

But as companies continue to merge in what is a finite market, buyer power is only diminished, Mr. Urdan pointed out, and competition among the vendors decreases.

The companies, which together employ over 3,000 people, plan to complete the purchase in the first quarter of 2012.

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http://twitter.com/emosterd Eric Mosterd

In the short term, I think this will hurt the market, so I share some of the same concerns as Mr. Urdan. We experienced the same concerns–which were ultimately justified–when WebCT “merged” with Blackboard.

That said, I am not as convinced that this will cause long-term harm. Using the LMS market for another example–and I realize there are differences between the two–quite a number of alternatives to Blackboard (WebCT/Angel)/Desire2Learn, etc., are available and I would argue that they have some advantages over such large companies as they can be more nimble.

At EDUCAUSE, I saw what Instructure has in mind for analytics in Canvas, and was subsequently floored, as D2L’s package pales in comparison and is an expensive add-on to their Learning Environment (LE). I was floored again when they said this was going to be part of the standard Canvas package.

And at the risk of picking on D2L–I do so only because we use their product exclusively, so it is the only one on which I can speak with some authority–they just incorporated YouTube integration. One can argue the merits of YouTube, but it has been around forever–at least in the timescale of social media–and they are just now getting into other social media integration. They still do not have a decent mobile platform either.

When I look at companies like Instructure and others, like third-party supported Moodle/Sakai solutions, who seem to move more swiftly in these areas, I continue to be convinced of the viability and competition in this market.

It is amazing how fast these companies mature: D2L used to be the underdog–in part because of the lawsuit between them and Blackboard, but now they are well established in the market. That said, they have even taken some cues from Bb in suing the Utah Education Network, when they were not awarded a contract. Unlike Bb, though, they at least they had the sense to quickly back down from that, once the irony of the situation was brought to life (http://campustechnology.com/articles/2011/01/20/desire2learn-backs-away-from-customer-lawsuit.aspx).

If the LMS market can be this viable, then I see no reason the SIS market cannot be either. Granted, institutions do not switch between SIS vendors as frequently as they do LMS vendors, but I still think there is room for upstart companies here.
rwejd

This is a dinosaur business; the only thing that hasn’t happened yet is the Web application asteroid hitting the market. Seriously, why would anyone want to own these companies, unless they’re a private equity group like Hellman & Friedman, who will lean out both companies to a fare-thee-well, drive sales in a relentless, merciless fashion (pity their combined sales group – i.e. sacrificial lambs) and then unload the entire shebang to some unsuspecting buyer in 2-3 years, for a decent multiple? Top Sungard employees are leaving in droves. Bottom line: this is an inconsequential event, except for the money people at the top; it’s just another pile of chips inn their portfolio.