Over the years, SkillSoft (Nasdaq: SKIL) has developed a solid e-learning system for business and information technology (IT) professionals. Unfortunately, its sales haven't been nearly as consistent as its high-quality content. The company now seems to be making progress on a turnaround, but its proposed $285 million acquisition of rival education firm NETg could still pose a challenge.
Fourth-quarter revenues increased 6% to $57.7 million, while earnings doubled from $4.1 million, or $0.04 per share, to $8.2 million, or $0.08 per share. With this quarter's gross margins at a lofty 88%, SkillSoft's profits should be no surprise.
The company's content helps companies train employees on management skills and technical topics, including Java programming and Web design. It's a fiercely competitive market, crowded with players like New Horizons Worldwide (Nasdaq: NEWH.PK) and Learning Tree (Nasdaq: LTRE).
To boost its top line, SkillSoft realized that it needed to more aggressively develop its sales infrastructure. It's enjoyed a crucial success by establishing a telesales unit focused on small-to-medium-sized businesses. The company has also added 10 people to its direct field sales force, though investors likely won't see the fruits of that addition until the new hires have been on the job for at least nine months.
At the same time, management wants to make sure its growing sales organization has a healthy pipeline of products. That's why its $4.5 million acquisition of Targeted Learning Corporation (TLC) in February was so important. The deal gets SkillSoft a rich library of more than 300 videos from leadership experts; they're even available on mobile devices like Apple's (Nasdaq: AAPL) iPod.
But these moves are fairly small compared to the NETg acquisition, which will add roughly $160 million in revenues. It will also mean integrating different technology platforms, merging different sales forces and channels, and dealing with expected customer defections.
It's promising to see SkillSoft making such spot-on decisions lately, but any benefits of the NETg deal remain a year or more away. Even though the stock has been perking up a bit, there's still no need to rush into it.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 3,625 out of 24,208 in Motley Fool CAPS.
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