Merger To Create Major E-Learning Player

SumTotal Systems Inc. said Wednesday that it will acquire fellow E-learning and employee-performance-management software provider Pathlore Software Corp. in a deal valued at $47 million.

The acquisition, which is expected to be completed in 90 days, aims to create the largest standalone "learning management" software vendor that will compete against E-learning and employee-performance-management products from major vendors, including IBM, Oracle, and SAP.

Combined, Pathlore and SumTotal--which itself was created by the merger of E-learning vendors Docent and Click2Learn in 2004--have combined revenue of about $100 million and 1,500 customers, including several large health-care companies, financial-services firms, manufacturers, and government agencies, a Pathlore spokesman says.

By bringing together Pathlore's strength in training analytics and E-learning distribution with SumTotal's content-management and content-creation tools, the combined company hopes to elevate E-learning to the status of an enterprise application used to create learning programs anywhere within a company, rather than E-learning's more traditional use and deployment by corporate human-resources management and training departments.

Pathlore's products include tools to help companies analyze the business benefits achieved through employee E-training, the spokesman says. For instance, a company deploying E-learning software to educate its salespeople about a new product can then track how individual salespeople met their sales goals, he says.

Over the last decade, the E-learning market has seen many vendor mergers and acquisitions, and it has also seen enthusiasm grow and wane, often reflecting trends in the economy and fickleness from businesses about investing in employee training. In recent years, some businesses, including many health-care and financial-services companies, have increased their training budgets, particularly for compliance education related to government regulations like the Health Insurance Portability and Accountability Act and the Sarbanes-Oxley Act.

Late last year, research firm IDC projected that ongoing compliance-training efforts would spur 27% compounded annual growth in the E-learning system market over the next four years. IDC forecast that E-learning product sales, which were about $6.5 billion in 2003, will increase to more than $21 billion by 2008.

SumTotal, based in Mountain View, Calif., employs about 400 and reported revenue of $55.2 million in fiscal 2004. For the first half of 2005 the company generated $32.9 million in revenue. Pathlore, based in Columbus, Ohio, employs 150 people and posted revenue of $23.9 million in 2004. For the first half of 2005, Pathlore generated $14 million in revenue.