NEC Agrees to Acquisition by Harcourt

Sam Yau bristles at being called a turnaround expert, though that’s what others call him after he led the revival of National Education Corp.

He refers to himself, instead, as a strategist--a corporate leader who can put a company on the right path to achieve its vision.

Yau, 48, said he didn’t plan to rebuild NEC so it could be sold or so he could turn over the president’s reins to someone else. But that’s what happened. On Tuesday, Harcourt General Inc. signed an agreement to buy the Irvine training and education company for $811.6 million in cash.

“I could have stayed at NEC for many years, as long as I saw significant value being added,” he said. “There was no talk about selling the company when I came. We were repositioning the company for the long term.”

Yau aimed to take advantage of technology to bring education to people whenever they can find the time and wherever they happen to be. He focused NEC on offering more software-based products that could be delivered electronically on demand.

Hired two years ago this month, Yau did his job at a pace that dazzled directors and amazed industry experts.

He also worked himself out of a job, but he won’t be hurting for money: His stock holdings will give him $25 million in the sale.

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Harcourt could have picked up the company for a lot less cash in late 1994 when it first considered buying the firm.

But NEC was just too troubled. It lost $63.5 million in 1994, and put its vocational training schools--its original business--on the block. Its computer-based training division was bleeding the company dry, and its publishing and correspondence divisions needed help too.

After Harcourt walked away, NEC directors changed management. They brought in Yau, an expressive man with energy and ideas, to revive the company.

Yau helped complete the sale of the vocational schools, changed management at two of the three remaining divisions and refocused each group on basic products they had ignored while pursuing new and unprofitable avenues of growth.

The changes he fostered helped to garner some major clients, including a contract with Microsoft Corp. to provide computer training for its employees worldwide.

Last year, NEC returned to profitability, earning $21.4 million and letting Yau bask in the bright sun rays of success.

“I’m very pleased with all that’s happened,” said Richard C. Blum, a company director who, with his San Francisco investment firm, owns 7.4% of NEC stock. “And Sam did this in an amazingly short period of time.”

Harcourt spokesman Peter Farwell said: “The company had a lot of problems that hadn’t been dealt with adequately. Sam’s come in and done a great job in turning them around.”

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Those who knew him during his five years at Archive Corp. in Costa Mesa, before the computer tape-drive supplier was sold, praised his managerial and analytical skills--and his action. “Sam wouldn’t talk about fixing a problem--he’d do it,” said John Whates, a partner at the Deloitte & Touche accounting firm.

A short, slight-built man with longish hair and bookish features, the Hong Kong native built on various financial positions he held at Texas Instruments, Mostek Corp. and Michael’s Stores, all in Dallas, after obtaining a master’s degree in business administration from the University of Chicago.

He was recruited to help Archive out of a financial bind and, while there, got the idea that he could run a business himself. He soon had that chance with a near-bankrupt Dallas medical practice management firm called AdvaCare Inc. Within 15 months, operating income rose from 1% to 13% of revenue. Eight years after he joined, AdvaCare was sold.

When Yau and NEC directors were brought together, neither side was sure it would work. NEC was looking, in particular, for someone to save its computer-based training division, National Education Training Group (NETG).

“A number of us thought that the real opportunity in private education and training was going to be in computer-based training,” said Blum, who also is the husband of U.S. Sen. Dianne Feinstein (D-Calif.). “PCs were coming down to the point where schools and others could afford them, and we needed someone who came from that industry.”

In reviewing NEC, Yau said, he saw a big, fragmented market that was still emerging. He saw the company providing education to customers wherever they were and whenever they wanted it.

“I stumbled onto something interesting during my first six weeks,” he said. “I saw the vision: ‘Anytime, Anywhere Learning’ just came to me.” NEC eventually trademarked the phrase.

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But to get to that vision, Yau had to develop the strategies.

Directors were frustrated with money-losing NETG, he said. The problem, he said, was that the division had the wrong idea that distribution or technology was its driving force. It even sold other company’s products as well as computers themselves, many on installment plans that were never paid in full.

“It was clear to me that the driving force was products,” he said. “Technology was just the enabler.”

Yau brought in new management to provide fast, effective learning software. The software became so sophisticated that it can figure out each individual’s own learning path, skipping what the customer already knows.

The division, which made only about 65 NEC products in three years, turned out 220 last year. And NETG generated more courses--70--in last year’s fourth quarter alone than in the previous three years combined, he said, and operating income hit $6 million last year, compared with a $9-million loss in 1995.

At the company’s Steck-Vaughn Publishing Corp., Yau found a division with no computer software products in a field that was growing twice as fast as printed materials. He changed management and quickly bought a software company as a remedy.

Steck-Vaughn also was targeting school districts at a time when decisions about what materials to buy were being made by teachers and even parents. So NEC bought a catalog company to market Steck-Vaughn products to the new decision-makers.

At ICS Learning Systems, Yau found that the correspondence education division, which controls half the market, still relied almost entirely on mail delivery and printed materials. In addition, it still targeted vocational subjects at a time when more white-collar workers were looking for professional training.

With another acquisition, he redirected the division to add software and online educational products and to provide material over the Internet.

“It’s going to take awhile to build that,” he said. “But the vision is to be able to go to the Internet, look at a catalog, download a sample, register for the course, pay for it and even e-mail the professor when you need to.”

He also pushed the company to provide more professional-type courses, and that should get a big boost from Harcourt, a dominant force in professional education.

“ICS is just at the beginning,” Yau said. “But it has an accounting software program that you can work on for a few weeks and it can predict whether you will pass the CPA [certified public accountant] exam. If you don’t, you get a refund, and we’ve had to give refunds to only about 4% of the customers.”

In the last year, he said, ICS’ operating income doubled from 7% of revenue to 14%.

“A lot of momentum was building when I joined the board” in October 1995, said David Dukes, vice chairman of computer products distributor Ingram Micro Inc. in Santa Ana.

“There was a lot of enthusiasm for the strategy under Sam,” he said. “And the board’s been very pleased with Sam and the direction he’s given. He and the current management team are hard-driving and very passionate about what they do.”

Times staff writer Patrice Apodaca contributed to this story.