Vista Equity Proposes to Acquire SumTotal…Is This the Death of LMS?
Today, Vista Equity Partners announced the proposed acquisition of SumTotal Systems for $102.3 million. Vista Equity already owns a 12.7% stake in SumTotal, making them the largest active shareholder. Josh Bersin offers a great recap on the proposed acquisition. I agree with Josh that this is a significant event in the evolution of the LMS market for a couple of reasons…
- Traditional learning is shifting to more informal, social collaboration and knowledge sharing and companies have less demand for a “LMS”
- The traditional LMS market has been essentially running on auto-pilot for 3 years. The market has lacked growth, the vendors have struggled to compete against its talent management peers, and the technology legacy (long, costly implementations) have made innovation and functionality improvements more capital intensive. Investors like Vista Equity have grown impatient of the lack of return on investment as noted in their letter to SumTotal CEO, Arun Chandra.
- Multi-tenant SaaS has proven difficult to execute for traditional on-premise vendors like SumTotal and Saba. It is presumed that SaaS subscription revenues are less than 10% for both companies. Additionally, the hybrid delivery model, or ability to deliver software on-premise, hosted or on-demand/SaaS, has proven costly to architect, support and maintain with an existing code base.
Most importantly, for institutional investors like Vista Equity, they would prefer a “show me the money” now versus an investment in the long term success and future. A focus on “preserving the maintenance fees” outweighs a more committed approach to investing in innovation, robust product delivery and enhanced customer service.
My bet is that SumTotal will likely accept the offer as the significant premium (+62%) on Friday’s closing stock price ($2.01) is too much to pass up for the board and its investors. SumTotal has some great assets includes a solid customer base, a significant maintenance stream, solid brand recognition and a relatively low market capitalization…all traits that appeal private equity investors. In today’s market, institutional investors have little patience in business model shifts. I would anticipate more private equity interest and investment in other traditional HR and learning management vendors. The questions is…who’s next?
Technorati Tags: sumtotal, saba, learning management, lms, talent management, acquisition
14 Comments Add your own
1. What Vista Equity Partner&hellip | April 7th, 2009 at 5:06 pm
[…] Partners proposed acquisition of SumTotal Systems (it already owns ~13% today). Some of the commentary decries the demise of the LMS. Others have focused on how the proposed acquisition reflects […]
2. Amit Avasthi | April 8th, 2009 at 12:10 pm
Agree with you completely, the speciality or the niche players in LMS face a lot of competition from talent vendors.
However what remains to be seen is how would Equity want to utilize the Sum Total acquisition, that would also be a telling point for other similar moves in the future. Till then, its jittery for customers and prospects of Sum Total
3. Grandma | April 9th, 2009 at 1:11 pm
Respectfully, I have to disagree with you (and Josh) on your points made here. LMS sales are flat? In today’s times, flat is the new up. All talent vendors have seen flatter sales compared to the aggressive growth seen between 2001-2007. Talent Suite vendors aren’t supplanting the install base of Learning Vendors. Learning is by far the stickiest module in the Talent Suite. Not to be harsh, but for you to say that Learning is evolving to informal social collaboration is actually ridiculous. You are ignoring the baby boomers that make up 44% of the workforce. The internet isn’t the only way to learn. Additionally, employees need to prove to others that they’ve taken training. LMS also meets the needs of companies that are regulated (and regulations will increase). Social collaboration and knowledge sharing don’t impress auditors who want to know that your employees are qualified to do their jobs. LMS vendors also provide companies with a platform to sell external training. Do you know what the 1-year return is on Apollo Corp (U of Phoenix)? 30%. People clamor for more training in tough economic times and this demand is commensurate within companies. This makes the training organization more valuable than ever. Learning Management also has the highest return on any Talent module – just ask Dr. Laurie Bassi. It is also the first module you should launch with any talent strategy (http://grandmaslaw.com/?p=123). It is why LMS originated the talent suite.
4. Jason Corsello | April 9th, 2009 at 7:40 pm
Oh Grandma. While I do agree an LMS can have solid benefits when it comes to highly certified and regulated industries, the broad-based value proposition is quickly disappearing. Guess we’ll agree to disagree. I do think you are unclear in your facts though. In particular…
1) LMS vendors have grown at a much slower rate than their TM peers over the past 4 years by a significant %. Sumtotal the market leader in LMS has grown about 20% over the past 3 years while SuccessFactors, the market leader in performance management has grown about 300%. And the LMS growth has been primarily centered on capturing maintenance fees not new customers.
2) Of all of the publicly traded TM vendors (including ORCL and SAP and LMSs) over the past 5 years, the 2 LMS market leaders, SUMT and SABA, rank as the lowest performing of the group. SUMT stock is down over 77% during the past 5 years. SABA is down 57%. What that tells me is the market is quickly diluting.
3) LMS did not originate the talent suite. In fact, the early TM vendors started in the early 90s and before the leading best-of-breed LMS vendors.
4) I’m not sure how many companies that you have helped select learning as part of their talent strategy but in my past 5+ years, only 5% of companies I have worked with have made learning the “first module to launch a talent strategy”. I’m not against starting a talent strategy with learning, but most companies I’ve worked with can deploy many of the other modules faster and with greater levels of success than learning (esp. with the larger organizations.)
5. Grandpa | April 10th, 2009 at 8:58 am
And exactly what is your point? How do you equate the purchase of SUMT by a private equity firm as the death of the LMS?
If Vista were unhappy with the LMS space, they could just sell their stake in SUMT and move on. That is not what they’re doing. Instead, it’s buying the company because the management team is bereft of any strategy to generate shareholder value. Vista thinks there is potential in the space and that they can exploit that potential with a different management team. That hardly spells death of the LMS. If anything, it’s the exact opposite.
6. Structured Methods &rsaqu&hellip | April 15th, 2009 at 12:06 pm
[…] The Human Capitalist » Vista Equity Proposes to Acquire SumTotal…Is This the Death of LMS? Vista Equity Partners announced the proposed acquisition of SumTotal Systems for $102.3 million. This is a significant event in the evolution of the LMS market for a few reason. 1. Traditional learning is shifting to more informal, social collaboration and knowledge sharing and companies have less demand for a “LMS”; 2. The traditional LMS market has been essentially running on auto-pilot for 3 years. 3. Multi-tenant SaaS has proven difficult to execute for traditional on-premise vendors like SumTotal and Saba. It is presumed that SaaS subscription revenues are less than 10% for both companies. (tags: learning LMS trends SumTotal) This was written by Chuck Allen. Posted on Wednesday, April 15, 2009, at 11:06 am. Filed under Uncategorized. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback. […]
7. Structured Methods &rsaqu&hellip | April 15th, 2009 at 1:03 pm
[…] The Human Capitalist » Vista Equity Proposes to Acquire SumTotal…Is This the Death of LMS? Vista Equity Partners announced the proposed acquisition of SumTotal Systems for $102.3 million. This is a significant event in the evolution of the LMS market for a few reason. 1. Traditional learning is shifting to more informal, social collaboration and knowledge sharing and companies have less demand for a “LMS”; 2. The traditional LMS market has been essentially running on auto-pilot for 3 years. 3. Multi-tenant SaaS has proven difficult to execute for traditional on-premise vendors like SumTotal and Saba. It is presumed that SaaS subscription revenues are less than 10% for both companies. (tags: learning LMS trends SumTotal) This was written by Chuck Allen. Posted on Wednesday, April 15, 2009, at 12:03 pm. Filed under Uncategorized. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback. […]
8. Structured Methods &rsaqu&hellip | April 15th, 2009 at 1:57 pm
[…] The Human Capitalist » Vista Equity Proposes to Acquire SumTotal…Is This the Death of LMS? Vista Equity Partners announced the proposed acquisition of SumTotal Systems for $102.3 million. This is a significant event in the evolution of the LMS market for a few reason. 1. Traditional learning is shifting to more informal, social collaboration and knowledge sharing and companies have less demand for a “LMS”; 2. The traditional LMS market has been essentially running on auto-pilot for 3 years. 3. Multi-tenant SaaS has proven difficult to execute for traditional on-premise vendors like SumTotal and Saba. It is presumed that SaaS subscription revenues are less than 10% for both companies. (tags: learning LMS trends SumTotal) This was written by Chuck Allen. Posted on Wednesday, April 15, 2009, at 12:57 pm. Filed under Uncategorized. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback. […]
9. Adv. Pragmaticoutsourcing | April 19th, 2009 at 12:14 am
It is a fact that LMS did not originate the talent suite as well as LNS sector couldn’t register the progress as was expected and predicted. I see Vista’s offer as a positive sign.
10. Techsphinx | April 24th, 2009 at 6:09 am
Looks like anything but the death of the LMS, now that another PE firm is paying $3.80 per share for SumTotal. Yes, it is still cheap, but you don’t outbid another firm by 17% per share if you think the LMS is dead. Interesting to see if the deal pace picks up now in the HCM/Talent space.
11. Jason Corsello | April 24th, 2009 at 6:40 am
Techsphinx…I’m not sure its a statement on the health of the LMS market as it is investors looking to put more money to work with an undervalued and fairly risk-averse asset!
12. Techsphinx | April 24th, 2009 at 7:34 am
You have a point Jason, but there is a LOT of room between “on fire” and “dead” for a market. It is simply very premature to call it either way. The story on the LMS segment of HCM, despite how long it has been going on, seems far from being over with more entanglements, twists and turns still possible, almost like Tolstoy was scripting it. My full take is here : SumTotal agrees to buyout by PE firm Accel-KKR
13. Michael Warren | May 2nd, 2009 at 10:12 am
Golden Opportunity For Strategic HR
LMS mortality is not crucial to HR, but making a strategic contribution is. HR professionals currently have a golden opportunity to permanently record their strategic importance in the leadership of American corporations. The new green corporate training and green teambuilding company, StreamingStrategies, explains this HR goldmine on their GREEN LEARNING blog, www.streamingstrategies.com/blog.
14. Techsphinx | May 4th, 2009 at 9:38 am
Nice commercial Mr. Warren. The Streaming Strategies website only proves that you are a nutter. Truly laugh out loud stuff.
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