Cengage Learning is present in six educational markets: academic, career, school, research, professional, and international. The company develops products for the US educational and professional markets, and they are adapted and distributed in over 110 countries by Cengage International.
Analysis & Key Developments
Financial
In July 2013, Cengage filed for Chapter 11 bankruptcy protection, as the textbook publisher couldn’t handle its debt of more than 5.8 billion USD. The company entered into a restructuring agreement that eliminated more than 4 billion USD in debt.
Cengage reached an additional settlement with its creditors to pay 1.75 – 2 billion USD in equity from the reorganized company.
In April 2014, Cengage emerged from Chapter 11 with a debt remainder of slightly less than the company's annual sales of approximately 2 billion USD.
The debt was a legacy of the 2007 Apax buyout. Apax purchased roughly 800 million USD of the company's debt to ensure a role in the negotiations along with rival Apollo Global Management, which also bought McGraw-Hill.
Ownership, Mergers & Acquisition, Internal Organization
As Cengage completed its restructuring, CEO Michael Hansen announced a move of the company’s headquarters to Boston. This contradicted an earlier statement that only the management team would move to Boston. “We are developing Boston as a high-tech center for us. We've found the Boston market very good—not necessarily cheap—but a very good place to attract technology talent”, Hansen said.
International
According to a spokesperson, Cengage will continue to maintain operations in more than 20 countries around the world and many locations in the U.S.
Earlier Developments
Financial
While revenues and earnings rose for Cengage Learning, the company is still struggling with debts amounting to 5.7 billion USD for fiscal year 2012. The domestic segment generated approximately 86.2% and 95.9%, respectively, of total revenues and adjusted EBITDA.
Cengage Learning reported an operating loss of 2.77 billion USD for the third quarter of 2012, compared to a loss of 12.3 million USD the previous year. Sales rose 4.8% to 353.4 million USD.
Ownership, Mergers & Acquisition, Internal Organization
Both Ron Dunn and David Shaffer announced they would step down from their current positions in July 2012. Ron Dunn, who was CEO since 2007, became Chairman to make way for a younger chief officer. David Shaffer retired as company chairman on September 30, 2012. Julian Drinkall replaced Jill Jones as president and CEO of Cengage EMEA and India business.
Cengage had to shift a debt of approximately 5.7 billion USD with 500 million USD annual interest. Following Dunn’s departure, the company announced they would appeal to investors with a debt maturity extension program. However, in May 2013, new CEO Michael Hansen (as of September 2012) discussed restructuring options with analysts including a possible voluntary Chapter 11 bankruptcy filing, since the company may not have enough liquidity to repay. Cengage Learning had already appointed restructuring advisers to repay parts of its 5.3 billion USD gross debt load. Cengage was bought by Apax in 2007 for 7.75 billion USD, and a private equity owner “bought up more than 800 million USD of debt in the struggling publisher, potentially setting the stage for an effort to keep control of the company even if Cengage files for bankruptcy”, according to the Wall Street Journal. Analysts assumed that Apax could be interested in merging Cengage with the former education unit of McGraw Hill that was bought by Apollo, which also holds Cengage debt.
International
For fiscal year 2012, the international segment generated approximately 13.8% and 6.1%, respectively, of total revenues and adjusted EBITDA.
As a foreign educational publisher, Cengage developed a strong position within the Chinese ELT market. Cengage Lerarning operates in Asia/Pacific, EMEA (Europe, Middle East and Africa), and Latin America, with physical locations in Asia (based in Singapore), EMEA (based in Andover, England), Australia (based in Melbourne), and Latin America (based in Mexico City).
Digital
For fiscal year 2012, total domestic digital product sales comprised approximately 37.5% of total domestic revenue compared with 31.9% for fiscal year 2011, with digital product sales during fiscal year 2012 for key digital products in the core two- and four-year college and career markets increasing by over 52.0% compared to the prior year.
In the research market, Cengage digitized substantially all of its reference content and derives approximately 70% of revenue in the research market from digital products.
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