McGraw-Hill Education, Cengage to Merge in Pairing of Major K-12, College Companies

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McGraw-Hill Education and Cengage announced today that they have agreed to merge, in a pairing that will bring together two major producers of educational content and services across the K-12 and college landscape.

The all-stock merger has the potential to reshape a vast swath of territory in the education market. The newly merged company will have a huge footprint in the education space, delivering 44,000 combined titles and serving customers in more than 100 countries.

The combined company would have pro forma cash revenue of nearly $3.2 billion, the organizations said.

The deal will give the organizations the capacity to “empower students and educators around the world with a wide choice of affordable, engaging course materials and advanced digital platforms to help them succeed through a lifetime of learning,” McGraw-Hill Education President and CEO Nana Banerjee said in a statement.

The combined organization will be named McGraw Hill, though details will be finalized before the deal is complete. The deal is expected to close by early 2020, subject to closing conditions and regulatory approval by the U.S. Department of Justice.

It will be led by Michael Hansen, who is currently the CEO of Cengage. Banerjee will continue to lead McGraw-Hill Education through the transition, the companies said.

The leadership team at the merged company will consist of members of both organizations, and will be announced prior to the closing of the deal.

Long known as one of the biggest publishers in education, McGraw-Hill Education has in recent years sought to recast its mission as a “learning science company” capable of delivering resources customized to the needs of individual students. It offers a wide variety of curriculum and academic resources across K-12, and it is the producer of ALEKS, an online tutoring and assessment program.

McGraw-Hill Education has also taken steps to diversify the array of curriculum products it offers, and how it delivers them.

Earlier this year, it reached a deal to build upon and sell a commercial version of a popular curriculum developed by an open educational resources provider, Illustrative Mathematics, in a deal that reflects a potentially major shift in open materials’ role in the K-12 marketplace.

Based in New York, McGraw-Hill Education also noted in the announcement that it offers a variety of services and products in the college space, including the Inclusive Access program, which seeks to provide students with digital materials.

Cengage has a major role in higher education. Its products include Cengage Unlimited, a digital subscription service for higher education, which offers access to more than 22,000 e-books, online homework access, study guides, and other features. It works in the K-12 and workforce markets, too. A subscription to the service also gives users free access to Chegg Tutoring, Kaplan Test Prep, and Quizlet, among other products.

Hansen said the new company will focus on providing “best-in-class” content delivered digitally at affordable prices.

The combined organization, he added, will have “robust financial strength to invest in next-generation products, technology, and services that create superior experiences and value for millions of students.” Five years ago, Cengage completed a financial restructuring under Chapter 11 of the U.S. bankruptcy code.

In a video released with details of the announced merger, Banerjee and Hansen said they are committed to focusing on the affordability of their products in higher education. They also predicted the two organizations would be able to harness their combined power to deliver new products in artificial intelligence, adaptive learning, and the integration of games in learning.

The goal is to give educators and students “more freedom of choice and the analytics around the education experience,” Banerjee said, which “leads to the next generation of products.”

Once the merger is completed, the companies expect to save $300 million annually over three years. Those savings will come from “a combination of labor costs and non-labor costs,” said Hansen on a conference call for investors after the announcement. That will include “a consolidation of size, assets, platforms and digital infrastructure,” he said.

The companies also expect to have a larger footprint in the international market, with a focus on Australia, China, India, and the Middle East. Hansen said each area has a particular problem that needs to be solved.

“At a global level, a common theme is access to high-quality content,” and the time instructors have to interact with learners, said Banerjee on the conference call.  He said ALEKS, a digital platform that incorporates analytics and adaptive learning with high-quality content, is a solution that could make learning more accessible in other countries.

Updated: This post was updated with additional information and comments from the CEOs of McGraw-Hill Education/Cengage on an investor’s conference call.

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