Why are mergers and acquisitions happening?
The most basic cause behind the current trend in the training industry is the same one behind the trend in industry in general: the need to have a broader reach and more global influence. As we head toward a worldwide market, companies that want to maintain high profiles need to bulk up. If a company can’t grow fast by itself, then the quickest option is to merge.
Another reason, says Laraine Mancuso, a trainer with the Learning Annex in New York City, is the training industry’s current upswing. "We’re hot. Right now, everyone’s looking to improve the quality of their workforce," she says. Mancuso cites such factors as the continued growth of learning organizations, increased global competition and the welfare-to-work movement as creating needs for training. The more services a company can provide, the more customers it will get. So for many training companies, a merger of several different services under one corporate roof makes great sense.
In January, for instance, three major training players merged to create AchieveGlobal. Executives thought each of the companies had a niche that, when combined, would create a consulting powerhouse: Learning International had a specialty in sales performance, Zenger Miller’s forté was leadership and organizational effectiveness and Kaset International’s was customer loyalty and commitment.
The merger actually began eight years ago, when Times Mirror Co. acquired the three. The small firms needed capital to grow themselves, says Marcia Corbett, vice president of marketing for Tampa-based AchieveGlobal. "It’s difficult for companies to go to a banker with something as intangible as what we do," she says. "It’s hard to get capital funding for research or development. That was the driver for all of this—so we could secure better investment for our companies."
The acquisition solved the companies’ investment issues, and a few years ago, they began to combine some backroom operations to increase efficiency and lower expenses. It was at a planning meeting of the companies’ top managers that the idea to merge first floated. Those who attended the meeting discussed a major change in customer demands. Customers no longer wanted to just buy products here and there. They wanted access to solutions for all their business issues, and from one place. With only a 7 percent overlap in customers, the three entities decided to knit together their products and services.
"It used to be that the trend in training was specializing in a niche area," says Corbett. "What customers are looking for now are solutions to business problems that aren’t content specific, so we needed to change our business design from a content-based to solution-based company."
New York City-based Assessment Solutions Inc. (ASI) took a similar approach. As an HR consulting firm, part of ASI’s business is conducting call monitoring to help companies gauge the quality of their customer-service operations. But ASI lacked any specific customer-service training expertise. Enter Effective Learning Systems, a much smaller company that specialized in just that kind of training.
It was an excellent match—as negotiations went on, the two company presidents often joked that their firms were getting married. "We really did need [a company] like theirs, and they were really looking into folding into an organization like ours," says Paul Squires, vice president of ASI. "It just made sense strategically because now we can offer the full range of training service to call centers."
Compatibility affects the merger’s success.
Squires says that today, more than a year into the merger, the companies are well integrated. ASI’s industrial psychologists have helped develop call-center training programs, and conversely, the professional trainers of the former Effective Learning Systems are delivering training in areas that used to be pure ASI domain.
Not only has the company added expertise, but it has added clients. The New York Times, a former client of Effective Learning Systems, bought a call-monitoring program from ASI at their trainer’s advice. "It’s been a nice integration," says Squires. "It’s doing what we wanted it to do."
Speaking of nice integration, one recent merger on every trainer’s lips is Provo, Utah-based FranklinCovey Co., a merger of FranklinQuest Co. and Covey Leadership Center. FranklinQuest is best known for its Franklin Day Planner and attendant time-management courses, while the Stephen Covey organization offered consulting and training based on Covey’s popular book Seven Habits of Highly Effective People (Simon &Schuster, 1989). Both groups are known for their strong philosophical overtone—to take control of your life—and their near-cultish followings. "I think they’re extremely compatible," says Mancuso. "[When I heard] they were merging, I almost felt that it was philosophical, that there were other reasons why they merged besides the fact that they could just make a gazillion dollars."
FranklinCovey introduced its first big post-merger product in October—a time and life management course, "What Matters Most," that will gradually replace the individual companies’ courses on the topic. But it hasn’t been easy.
"The tests [of the first iteration] with clients were unmitigated disasters," says Jon Rowberry, chief executive officer of FranklinCovey. "It was definitely the case of the horse designed by committee—[the participants] tried to pack everything from each course in one." The final product, Rowberry believes, is a better blend of the best of the two courses. "The [course] was really a symbol of whether the company could merge together and create something better than the two separate companies [could alone]. Internally, it was a key sign as to whether this merger would succeed, so we were quite relieved."
Along with FranklinCovey’s product integration, Mancuso is also impressed with the integration of customers. "I thought they’d go with having two obsessed [customer] groups, but it looks like they want to merge into one obsessed group, which is good for the company. It’s going to be a juggernaut. No one’s going to touch it."
And Mancuso has a point: FranklinCovey now has a client base that includes 82 of the Fortune 100.
While many mergers and acquisitions seek immediate melding of operations, others take a different approach. When Boston-based Provant Inc. went public in April, it was a ready-made training giant. Chairman and CEO Paul Verrochi had acquired seven founding companies, with expertise including culture change, diversity, multimedia, TQM and the federal sector. The plan: to be the leader of the performance-improvement industry. To do so, it will keep adding companies with varied niches. The idea isn’t simply to integrate, but to take advantage of what each company does well. In fact, Provant refers to itself as "a group of allied companies."
"We’ve got a very focused acquisition strategy,"says Paula Elliot Whelan, director of investor relations. "We intend to utilize the content of the companies, rather than blend them all together into a homogenized entity. We want the products and services of each of the companies we acquire."
Provant’s September acquisition of American Media Inc. is a case in point. AMI’s operations will remain at its headquarters in Des Moines, Iowa, and its CEO, Arthur Bauer, will continue to helm the company. Unlike FranklinQuest, the two companies won’t be spinning out post-merger products. AMIwill continue to produce its how-to training tools on sexual harassment, discrimination, diversity management and conflict resolution.
Provant will now be able to get its hands on AMI’s business advantages: computer-based training, a wide client base, a high-volume call-center operation—and a track record of reaching the small potatoes. "Sold through direct mail, telemarketing and an extensive network of international distributors, AMI’s products are currently distributed in more than 65 countries and 22 languages,"Verrochi said in a statement. "AMI’s channels of distribution reach medium- to small-size corporations. By using these distribution channels, we believe that our other operating companies will be able to expand their product distribution." Whelan puts it succinctly:"All those marketing opportunities will transfer to us." Stay tuned because Provant is only going to get bigger.
Mergers and acquisitions have a down side.
The current trend has spawned both positive and negative prognostications for training’s future and its service to customers. On the down side are mishandled mergers. When a smaller company is folded into a larger company, such as the case with ASI, the merger is easier to handle, and in turn, the impact of customers is skewed toward the positive.
Squires says his company has moved slowly in integrating the two firms, particularly because ASI was a public company and Effective Learning Systems was private when the merger occurred, which gave the latter an added challenge of adjusting to quarterly-results thinking. "We had a rule that customers shouldn’t notice there’s been a difference," says Squires. "They kept the same contact people, so they may have expanded their circle, but they had a name they knew from the beginning."
And this is exactly the problem that Mancuso says has been troubling larger companies—crunching goliaths together without customers feeling the collision. She has dropped several former product providers, she says, because the service deteriorated in the shakeup. Account representatives would move from division to division, and phone calls would go unreturned. "I decided it wasn’t worth the trouble and went elsewhere," she says.
To ensure the massive FranklinCovey merger went smoothly, the two companies began merging two months before shareholders had signed off for a merger. Twenty-one teams were created to represent every area of the company, from computer systems to sales and marketing. Functional counterparts from each company would meet, swap the secrets of their jobs, and come up with a way to do things better in the merged company. "Had the merger not come off, we’d have each found ourselves in a sticky situation," says Rowberry.
Rowberry says that while the business side of the merger was spotless, the culture was less so; merging two former competitors is tough. The cost of communication and internal focus was high. Though the executive team quickly melded under guidance of the two company leaders—20-year friends Stephen Covey and Hyram Smith—the rest of the company didn’t follow as easily, mainly because of strong loyalty to Covey and Smith.
"It’s like being out some place, someone insults you, it’s no big deal—but then they insult your mother," says Rowberry. "There were a lot of people deep in the organization trying to protect the honor of these people who really didn’t need to be protected. So it took some time for each side to realize that the guy who founded the other side was a good guy, too."
Fewer companies mean more services from one provider.
Potential disruptions aside, another worry of training experts is that massive mergers could mean the homogenization of an industry once known for its creativity and innovation. As training firms merge, so do training products, which means there could be less selection for companies in the long run. "If there’s less competition and there’s just a few big players, it’s conceivable that you move to—if not a monopolistic approach—at least an obligatory approach," says Laurie Bassi, vice president for research for the American Society for Training and Development in Alexandria, Virginia. "And is there going to be enough competition to keep people on their toes?"
However, Bassi thinks it’s unlikely that mergers will damage the industry much. In fact, she mostly sees the bright side. Mass customization, she believes, will allow the training community to granulize learning down to its smallest components, so that companies can grab a little bit of each educational piece they need, and inexpensively assemble their own highly personalized training. "You’ll take a module from the customer-service class, one from the management-development class, modules from anywhere, and combine them for your audience," she says.
Another upside, Bassi believes, is that mergers represent Corporate America’s increased reliance and trust in training. They signal a shift in the training industry from a craft to a genuine profession. As professional standards go up, she says, so will the scientific mentality around training. Obviously, that’s good news for customers because it will weed out trainers who don’t hold themselves accountable for results, and will encourage more business-minded training.
Squires says he’s already seeing that shift. "Trainers today have to be more than training experts and more than subject experts. They need business acumen," he says.
Finally, Corbett says AchieveGlobal’s merger brought one unexpected improvement: Customers have mentioned continually how pleased they are that their training provider itself has experienced a merger. "They say, ‘What you guys are going through makes you more valuable because now you understand where we are after our merger. You’re not just academically working with us, but you’ve walked in our shoes,’" she says. Indeed, FranklinCovey has already positioned itself as a consultant to companies that "want to accelerate the benefits of mergers and acquisitions."
As mergers and acquisitions in the training industry continue—and most experts predict they will—the effect on HR professionals looks mostly rosy. The move toward one-stop shopping means that you can make just one or two calls for all your training, and have that training be more holistic. And you might be able to better customize training for your company or even divisions within it at a low cost. Just think—here’s one business trend that could actually simplify the job of HR.
Workforce, November 1998, vol. 77, No. 11, pp. 87-90.