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Pearson bets on growth in US education

In November, Rupert Murdoch’s News Corporation made its first foray into the US education space with the $360m (£228m) purchase of Wireless Generation.

Dame Marjorie Scardino, the chief executive of Pearson, was not fazed. On discovering that Mr Murdoch could become a rival to another of her businesses (News Corp’s Harper Collins is already a rival to Pearson’s Penguin), she declared, “I’m ready for him [Murdoch],” adding, “Although we figured out what he’s doing now 10 years ago.”

Pearson has rapidly become a dominant player in the US education. The group may be best known as the owner of the Financial Times, but North American education is its biggest revenue driver, accounting for £2.64bn of sales in 2010. Total group revenues in 2010 were £5.66bn.

It is not difficult to see why Pearson was one of the biggest risers in the early trading in London. The group has a clear track record in the US education sector and today’s acquisition of Schoolnet for $230m strengthens its offering, with personalized learning playing a key role in the US curriculum.

The greatest risk of having such a significant slice of the revenue pie coming from US education is the dependence on state budgets. However, Barack Obama’s government has highlighted education as an area of the US that requires reform, especially K-12 (primary and secondary). Despite Pearson’s years of building its US education business – and judging by Mr Murdoch’s move – there is clearly a lot more room for growth in American education.

Through schemes such as Race to the Top, around $17bn has been allocated to states and districts to support school improvement in recent years. However, what makes acquisitions like today’s most interesting is the global potential for Pearson. The group will be able to roll-out the Schoolnet technology into its international operations.

Much of what Pearson has learned in the US is now being applied globally, with headline growth of 18pc at its international education business in 2010. International education sales totalled £1.47bn last year, with the division Pearson’s fastest growing for the past five years. While there still a large dependence on US state education budgets, this is gradually falling with the rapid growth of global education. As Pearson seeks faster growth in new, emerging education markets, also interesting is its move into new areas within the education space.

One example is its rapid development of English language schools in China. Pearson has about 70 English-language schools in China, 45 of them branches of Wall Street English, which it acquired for £145m in April 2009. Wall Street English caters to China’s huge and growing market of “aspiring professionals” aiming to polish their business English. Pearson also has 21 Longman schools which cater to children. An estimated 200m and 350m Chinese are either studying or speaking English, with around 50,000 companies offering private English classes in China.

The question is whether Mr Murdoch will see the potential and follow.

By Amanda Andrews 12:33PM BST 26 Apr 2011

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