The headline figures for these acquisitions look great.  Just the other day, SumTotal again announced increasing revenues (this time up by 46%), whilst BlackBoard have shown revenue up 40% and SABA , 70%.  If we look at the sales figures, these deals have been very successful.

Moving beyond the sales figures though, we see the knock on effect - profitability is being pushed further into the future.  Acquisition related costs such as write-offs, exceptional charges and amortisation (which are the result of things like duplication, restructuring, accounting for goodwill, etc.) take what meagre profits these companies have, and all too often, turn the bottom line into negative figures.

So at the same time as increasing revenue by 46%, SumTotal reported that they moved from a net profit to a net loss for the quarter ($2.7m on $27m turnover).  Likewise, Blackboard reported a net loss of $4.7m on $50m turnover and SABA, a net loss of $2.6m on $23m turnover.

With a little effort, we could describe these figures as some sort of acquisition related indigestion, a short term price to be paid for the longer term benefits that each will gain.  And with millions in cash on their balance sheets, we can probably assume they will do reasonably well in the longer term.

However, looking a little further into the balance sheet (that's beyond the cash and cash equivalents line), things don't look so rosy.

Here's what the balance sheets tell us about our three companys' level of current assets compared to current liabilities:

On a worst case scenario, these three e-Learning beasts will not be able to pay their current liabilities.  The  reality though, is that things aren't that bleak as they all have shareholders and longer term assets to fall back on.  

The three companies have bucket loads of long term assets shown on their balance sheets, but at Just Learn we are starting to wonder about the quality of some of these “assets”, especially those falling under the headings of “goodwill” and “intangibles”.  

The bulk of the “goodwill” and “intangible” assets in their balance sheets have been created as a direct result of their recent market acquisitions.  But what often happens with goodwill and intangible assets created via market acquisitions, is that at some point, they get written down (amortization or depreciation).  At this stage, the asset (or the impact of the asset) starts to reduce the Companys' profitability.

So what do each of our companies hold in total assets, and how much are classed as goodwill and intangibles:

Not all of these acquisition related assets will be written off, but a large proportion of them probably will be. For instance, going back to the recent statement from Blackboard, we see they have already charged $12m against profit in the year to date for the amortization of acquired intangibles, with a further $5m expected in the final quarter.  This is a pattern which could continue for another few years yet.

The e-Learning market is a busy place and is still in its' infancy.  And being honest, there are probably still too many companies chasing too few clients with budget to spend.  As the market evolves, we see further consolidation as inevitable.

For the e-learning market to have any hope of a long term future, we need to find sustainable business models that do not rely on a section of stakeholders subsiding the remainder.  We're not clear which model will become the dominant one in the future (bespoke software providers charging licence fees, open source providers supplying additional services costed on top, or development being done in house), but looking at the recent results of the market consolidation activity, we do have to ask if what the “big boys” are chasing is sustainable in the longer term.