Schools are not buying enough textbooks to support as many educational publishers as are currently fighting for market share.
Barry O'Callaghan's whale-swallowing minnow Riverdeep found that out the hard way.
He set out to create a monolithic publisher but instead created a debt-riddled behemoth that suffocated under its own weight.
In the process, countless employees of Harcourt and Houghton Mifflin were given the sack, becoming "realized synergies" as the educational publishing materials firm tried to cut costs to save money and pay what was owed to its creditors.
One side effect of all that acquiring was the decision by other publishers in the same industry to match Mr. O'Callaghan.
Cengage thought it had to meet the challenge head on, rather than go off on some road less traveled, and today the firm is being crushed by a debt load it cannot sustain.
As in the dismantling of O'Callaghan's creation, so too is Cengage beholden to the hedge funds, like Apax Partners, that are buying up all that debt. Those hedge funds are increasing their influence, because they have only to call in the loans and force Cengage to obey their commands.
When a hedge fund that gobbled up McGraw-Hill's educational publishing unit starts buying big pieces of Cengage debt, the pundits on Wall Street take note.
Like O'Callaghan's pile o' debt, Cengage bonds are near junk status because the outlet for their niche in publishing is not promising.
Like O'Callaghan's notion to cut costs by merging companies and eliminating overlapping employees, Apax could combine Cengage with McGraw Hill and realize round after round of "synergies" in an effort to cut costs and put the money into paring down debt instead of paying people to work.
One employee can do the work of three, if they want to keep their job. And you have only to ask those who remain at HMH how well that is working out for them.
The merger would be good for shareholders who would see their stocks rise in value. As for the employees of Cengage and McGraw-Hill, well, consider yourself a synergy to be realized, a bit of collateral damage.