Have you heard the news? Last week – less than two months into 2020 – one of the biggest acquisitions in learning systems history was announced. Cornerstone plans to acquire Saba for a hefty $1.395 billion. Yawn.
As you may have read in my annual industry trends analysis, the pace of acquisitions and strategic equity investments has been accelerating for several years. Many different solutions are coming together – and each deal is driven by unique factors. For instance:
- Sometimes a buyer seeks technology that is complementary or superior to its own.
- In other cases, a purchase can eliminate competition.
- An acquisition may mean instant access to a massive new customer base or lucrative distribution channels.
- Also, this kind of move is often driven by financial considerations – for example, to increase profitability or drive down operating costs.
But here’s the rub: Although an acquisition may be good for companies and investors on both sides of the deal, it’s rarely a treat for customers of the acquired business.
This time is no different. Why? Before jumping into my analysis, let’s step back and look at several relevant facts:
What Does Cornerstone Say About This Deal?
The very brief press release says that the combined company will serve 7000 customers and 75 million users around the globe. Impressive. But what’s driving this acquisition?
“The combined company will be well-positioned to deliver a highly differentiated portfolio of people development and talent experience software solutions by leveraging the existing product portfolio, as well as through accelerated product development enabled by a larger combined R&D team, greater financial resources and a shared vision for the future.”
Whew. That sentence is a mouthful. But after reading it a few times, I get it. So, what next-steps should we anticipate?
“Over the course of 2020, Cornerstone plans to integrate and optimize the collective portfolio of products with an unwavering commitment to client success. AlixPartners has been retained to help support the integration of the two organizations, focused on operational excellence and maximizing client value.”
Acquisition Upside: My Snapshot
When speaking with industry analysts, Cornerstone emphasized 3 key benefits of this deal. Here’s my summary:
1) Faster Innovation: Blending R&D from both companies will make it possible to develop more stuff, more quickly, across the product suite.
2) Broader Reach: The combined customer base will drive stronger content, support, systems integration and technology partnerships around the globe.
3) Increased Cash Flow: By eliminating duplication, Cornerstone expects to free-up enough funds to pay-off the acquisition debt, with plenty of extra cash available for additional investments to grow the business.
My View From the LMS Customer Front Lines
So what do I think about this mega-merger? Call me crazy, but I’m underwhelmed. Here’s why:
Cornerstone is shaking-up the lives of over 3000 Saba customers, primarily to pump-up cash flow for its investors. This will come from eliminating Saba-related product and operational redundancy while simultaneously relying on the existing Saba customer base to shoulder continued innovation and marketing reach. Doesn’t sound like Saba customers will see much upside anytime soon.
I’m sure my take is a bit different from other learning tech industry observers. It may be more controversial, but as a recovering LMS sales guy, I’m not easily persuaded by polished marketing pitches.
That’s because I spend my time on the front lines of learning systems buying and selling activity, where transactions are always happening. Every day, I listen as customers react to LMS vendors before, during and after a contract is signed.
I see which learning systems they choose and why. I monitor the gap between slick marketing and reality. And I know how buyers feel about their decisions long after the shininess of a purchase wears off. That’s when the sting of a rough implementation, a weak rollout and so-so customer service is sometimes the only thing that remains.
So, based on this practical view of the learning systems market, here are my top 10 observations about this deal…
The Cornerstone-Saba Acquisition: 10 Takeaways
1) Good for Vector Capital!
2) Death of the Talent Suite LMS Draws Closer
Upon hearing the news, my first thought was that this is the nearly silent final gasp of once-golden talent suite LMS providers. Over the years, I’ve been vocal about how saturated this market has become.
All large companies have deployed a talent management solution. And at this point, few see any financial, functional or business value in switching vendors.
As a result, talent management platform providers have been forced to swim downstream for mid-market deals. But that’s a problem because this segment doesn’t consider integrated talent management important. Plus, compared with cloud LMS solutions, talent suite learning platforms are too bulky and expensive for most mid-market buyers.
Cornerstone needs new customers, but there aren’t enough to win in the open market. So apparently, Cornerstone’s answer is to distract itself with post-acquisition business integration for the next few years.
3) What About Extended Enterprise?
Do you see any mention of extended enterprise needs in the acquisition announcement? Nope. Neither do I. Yet as I’ve been saying for years, customer education is the fastest-growing learning systems segment. And it can be highly profitable.
Both Cornerstone and Saba serve hundreds of organizations that train customers as an integral part of their business, yet these organizations don’t rely on Cornerstone or Saba to support customer training. And without even a nod to extended enterprise market expansion, Cornerstone still doesn’t get it.
4) What About Extended Enterprise (Part II)?
Over the years, we’ve helped many organizations move from Cornerstone to learning platforms that are better suited to extended enterprise needs.
Why do these customers look elsewhere? Their complaints are always the same. The user and admin interfaces are annoyingly clunky. Plus, no innovative extended enterprise capabilities have been added in years.
Hundreds of companies currently pay a premium to use Cornerstone or Saba as an extended enterprise learning platform, but they’re waiting to see more value-add. Looks like they’ll need to keep waiting.
5) What About Migration Services?
Last year, Cornerstone eliminated most of its professional services team in lieu of third-party partner implementation services. Now it’s signing-up for thousands of third-party Saba-to-Cornerstone migrations.
That doesn’t sound cheap, easy, fast or fun for Saba customers.
6) Beware of Sales Deck Sleight-of-Hand
More likely than not, Cornerstone is already backfilling sales slide decks to claim 100s of clients (in every industry) that it never actually won in open competition. Instead, these are existing Saba customers with no strong desire to migrate to Cornerstone.
7) Saba is the Better LMS. (Awkward)
In my opinion, Saba is a stronger learning management system. I’ll bet I’m not the only one who thinks so – and I imagine that’s one reason why Saba is such an attractive acquisition target.
It will be difficult to roll all of Saba’s best functionality into the Cornerstone platform. But since the elimination of redundancy is central to the acquisition strategy, Saba customers should see a migration sales pitch coming soon. Just keep in mind that this migration path will probably lead only to an equivalent solution, at best.
8) Existing Customers, Look Around!
This acquisition news isn’t all doom and gloom. In fact, it’s a great opportunity for thousands of soon-to-be inconvenienced Saba customers to reevaluate their LMS options before their contracts expire.
If you’re among those who will be forced to migrate, you might as well investigate the broader spectrum of solutions that could suit your needs. If you haven’t revisited your requirements and options in recent years, you’re way past due for a reality check, anyway. And I suspect you’ll be pleasantly surprised by what you discover.
Just remember to give yourself enough runway. Ideally, you’ll want to start exploring your options at least one year before your contract expiration date.
9) Active LMS Buyers: What Should You Do?
If you’ve been planning to select either Cornerstone or Saba as an extended enterprise learning platform, you might want to pause and talk with me first. You may find less risky options that could serve you better in the long-run.
10) Learning Ecosystem Partners: What’s Your Next Move?
Is this front-line analysis prompting deeper questions about your organization’s future with Saba or Cornerstone? Feel free to contact me for a phone consultation, so we can begin to weigh strategic factors that matter to your company.
I wish both Saba and Cornerstone well. More importantly, I wish their customers well. But in the learning systems industry, customers deserve a strong advocate for their interests. And this acquisition makes me nervous.
If you’re a Saba customer – especially one involved in extended enterprise learning – I don’t see any meat on these bones for you. Yet you’ll need to endure plenty of disruption. So since you’re facing significant change anyway, this seems like an ideal time to consider other solutions.
As Chinese philosopher Sun Tzu once said, “In the midst of chaos, there is also opportunity.”
Thanks for reading!