Its effective use of M&A saw education services company Pearson receive the Corporate Finance Faculty’s Corporate Development Award last November. Marc Mullen talks to CFO Sally Johnson about the importance of a clear strategy and how M&A plays its part.
Pearson’s Sally Johnson has the confidence of a CFO in full command of her remit. That assurance is borne out of faith in a clear growth strategy that has been communicated to Pearson management colleagues. And how M&A fits into the London-listed business’s plan is simple to encapsulate, she says: “We have two key principles in relation to any acquisition, or portfolio move – it must be on strategy and it must produce the right return on investment.”
Pearson is now an education services company, with business units including assessment and qualifications, virtual learning, English language learning, enterprise learning and skills, and higher education. It has transformed many times during its 180-year history, deploying significant M&A along the way. The organisation started life as a civil engineering business in Huddersfield, become an industrial conglomerate by 1920 and then a publisher after World War II. It listed on the London Stock Exchange in 1969 and has had an American depository receipt (ADR) listing on the New York Stock Exchange since 1997. In the late 1990s it pivoted from publishing to the education business and has grown and developed into the £3.7bn turnover business it is today.
Significant deals
Its effective M&A strategy paid dividends last November when Rachel Coulson, Johnson’s deputy, collected the Corporate Finance Faculty’s Corporate Development Award at the faculty’s annual reception. The much-coveted award is given to the business that has made the most effective use of M&A to increase shareholder value, by broadening its market and enhancing its technical capabilities. Public companies were assessed by an empirical analysis of the contribution of acquisitions made over the 30 months ended 30 June 2024, using a unique methodology devised by the Corporate Finance Faculty and the M&A Research Centre at Bayes Business School.
In her acceptance speech, Coulson said the award reflected hard work and “our disciplined approach to capital allocation and a deep focus on product innovation and execution”.
Team work
“The corporate development team is a small, but perfectly formed team of experts in the corporate finance space,” says Sally Johnson. “They are responsible for supporting business units in developing the pipeline of opportunities. And then if we get into an acquisition process, they are the experts at executing the deal. They are involved in the process all the way through from the development of the pipeline through to close of a deal.”
Most of the team has a corporate finance background, some with ACAs and some from an investment banking background. A lawyer sits in Pearson’s legal team who has a corporate finance background and works with the corporate development team when called upon.
During the period Pearson was assessed by the Corporate Finance Faculty for the impact on share price of its acquisitions, Alex Shore was vice president and head of corporate development. In January, he moved across the company to become senior vice president and head of investor relations. He had joined Pearson as an analyst in its corporate finance and strategy team back in 2011 from EY, where he spent four years in transaction services and trained as a chartered accountant. Over 14 years, he was steadily promoted through the Pearson ranks in corporate development.
Three significant acquisitions were completed during the Bayes assessment period. In January 2022, Pearson acquired Credly, the market leader in digital workforce credentialing, for £156m. In April 2022, the company acquired Mondly, a global online language learning platform. And in December 2022, it acquired workforce assessment service company Personnel Decisions Research Institutes (PDRI) for £150m.
Credly is part of Pearson’s enterprise learning and skills business unit, which grew 6% last year, and Johnson says this is “where the key part of our enterprise strategy is being built from”. She adds: “The Mondly acquisition has been super successful. We are focused on the engaged English language learner, people learning English for a reason rather than for a holiday. There was a synergy between Mondly and our existing business that helped people learn English in language schools and schools. The opportunity has been with a hybrid product, and Mondly has been very successful in now offering English study in the workplace.”
Making it happen
“The deal operations team is a group of experts who focus on integrating acquired businesses,” says Johnson. “They’re first involved in the process as we build out the actual acquisition strategy, our thinking about synergies, where the acquisition will land in the business,and all the things we need to understand to execute a successful integration plan.”
Matt Edmonston has been vice president, heading up deal operations, since June 2021, when he joined Pearson from AIG; he spent 12 years there in various programme director roles dealing with strategic transformation and acquisition integration. He also previously worked for other blue-chip companies, including Capita, AXA, Aviva and Swiss Re.
“The deal operations team all have some corporate finance and corporate development experience, but are more operational,” says Johnson. “They are more about how you plug things in and about understanding acquisitions from a technology point of view. They are less on the negotiating side and more on how you make it actually happen.”
Of the PDRI acquisition, she says: “That brought us a growing profitable business that was financially successful as soon as we brought it into the group. It has also given us capability in the recruitment assessment space – a different marketplace for us, but very much an adjacency. We offered assessments in the workplace, rather than assessments prior to getting into particular companies.”
Onwards, upwards
Johnson has been CFO of Pearson Plc for five years. She joined Pearson Plc in 2011 as financial controller for the Americas, from Dorling Kindersley Publishing (a Pearson Group company), where she was finance and operations director for seven years. Before that she spent four years with then-Pearson group company Penguin Publishing, and prior to that she spent five years with PwC, where she trained as an ACA.
In January 2025, Pearson announced its trading update for 2024. Underlying sales grew 3% for the year and the group adjusted profit of £595m-£600m was up around 10% year on year, on an underlying basis. Free cash-flow conversion was more than 100%. And the 2024 strategic priorities were delivered “with progress in enterprise and scaling AI across products and services”.
The share price responded well. By 5 February 2025 it was 1,352.50 – the highest for almost 10 years. It is 40% higher than it was one year before, when Omar Abbosh joined Pearson as CEO from Microsoft, where he had spent four years leading the digital transformation service line. Prior to that, he spent 31 years at Accenture, where among other roles, he was chief strategy officer and led its M&A strategy.
On announcing the 2024 trading update in January, Abbosh said: “I am pleased with the progress Pearson has made in 2024, successfully executing against our financial and strategic priorities. I’m particularly encouraged to see the growing commercial momentum of our AI-enhanced offerings and the strategic enterprise partnerships that we have established, such as the latest with Microsoft.”
Johnson says: “Microsoft is a customer of ours because they need people to have verified skills in using and developing their products. We’re a customer of Microsoft because as a technology business we use their cloud services. And now we go to market with them, creating products and services that bring together our two skill sets.” One example is Microsoft Copilot training.
Ideas in action
Pearson has a ventures team, within the company’s innovation group. “They are about bringing new ideas into the company – innovations that will enable growth in the business on a three-, five-, maybe 10-year horizon, rather than immediately,” says Johnson.
Pedro Vasconcellos has been vice president and head of ventures and innovation at Pearson’s corporate VC arm – Pearson Ventures – for six years. He joined Pearson in São Paulo, Brazil, in 2014 from Bertelsmann, where he had spent five years working in Brazil, Germany, the UK and Luxembourg. He sits on the board as observer at various businesses Pearson Ventures has invested in, including WithYouWithMe in Brisbane, Velocity Career Labs in Tel Aviv and Mindstone in London.
“Members of the venture team quite often have strategy backgrounds,” says Johnson. “Pedro has had many different leadership roles across the group. Working in that world is all about relationships and having a nose for innovation.
“They invest very small amounts of usually seed funding money,” she adds. “But again, the investment must have a divisional president or board member as a sponsor, and any venture investment must be relevant to our strategy. Faethm, an Australian workforce AI and data analytics company we bought in 2021, actually originated as a venture investment. So these relationships can develop into full acquisitions.”
As a plc with a full listing, Pearson has a clear stated strategy that is publicly laid out annually with its results announcements. “Deals must have clear synergies with our core business,” says Johnson. “Any acquisition we make will land in a business unit that is doing well already. We do not put an acquisition into a place that is going through a heavy transformation, for instance. We build a pipeline of relationships, any of which could turn into an acquisition or a partnership or a customer relationship.”
Investment bankers and advisers can feed into the Pearson M&A pipeline, but Johnson says when that happens there’s probably not as much value creation, compared with a deal that has come through their own pipeline. “We do try to avoid being part of a process if we can, which doesn’t mean we would never be part of a sale process.”
We build a pipeline of relationships, any of which could turn into an acquisition or a partnership or a customer relationship
Much of the work on a deal is carried out in-house – there are three teams: corporate development, deal operations and a venture team (see boxes) – but, Johnson adds: “We also have a range of advisers who can help when it’s relevant. So on disposals, we use banking advisers and legal experts, and we might use due diligence advisers in the finance or technology space. It really depends on the circumstances and size of any particular deal.”
Stars must align
With a strong balance sheet and healthy free cash flow, Pearson is well funded for deals. “I can meet my progressive sustainable dividend policy and then decide whether I can invest in something that is on strategy and makes the required ROI. That said, even if something is bang on strategy and offers a brilliant ROI, we may look at a different way of funding it. But certainly my expectation would be to fund acquisitions out of free cash flow.”
For acquisition opportunities to come to fruition all the stars must align, Johnson says: “Both sides have got be interested in a transaction. We’re not the sort of company that has an M&A budget that I must execute against.”
Last year didn’t produce any notable Pearson acquisitions, which Johnson says is “because the pipeline hadn’t come to fruition at that point”. Abbosh had also just arrived as CEO and the priority was to look at the overall strategy. Now, with a tweaked strategy in place, a healthy pipeline and cash on the balance sheet, Pearson certainly looks good to go again.
Learning experience
“Whichever business unit the acquisition is going into, that divisional president has responsibility for making the acquisition a success,” says Johnson. “On completion, the investment goes straight into that business unit president’s plan.”
And success is measured diligently with a post-acquisition review after six months and then each six months thereafter. Normal performance management processes are implemented straight away, including monthly trading calls. “The review is very thorough and across the board,” says Johnson. “It would look at what was intended from a people strategy, how the technology has performed, the integration and the financials. Every element of the acquisition is reviewed to both understand how the acquisition is going and to provide learning for any future acquisition.”
