An influx of financial buyers, motivated buyers and sellers, and the need to expand into new markets were some of the reasons behind the strongest mergers and acquisitions year in the publishing industry in some time.
Four deals announced in 2006 topped the $1 billion mark, led by the purchase of Houghton Mifflin by Riverdeep, which agreed to pay $1.75 billion for the publishing house and assume another $1.61 billion in debt. Ripplewood Holdings' pending purchase of Reader's Digest was the second largest acquisition announced last year and the largest involving a private equity group. Financial buyers were also behind the purchase of Thomas Nelson and Baker & Taylor, with InterMedia Partners acquiring Nelson and Castle Harlan buying B&T. "Equity players are involved with any auction of significant size," noted Robin Warner, a partner with the Van Tulleken Company, a mergers and acquisitions specialist.
Despite the interest in publishing from equity companies, the majority of deals in 2006 involved strategic purchases designed to augment a company's position in the marketplace. With industry sales sluggish, publishers are looking to supplement slow internal growth with acquisitions, noted Robert Halpern, who handles mergers and acquisitions for Cowan, Liebowitz & Latman. Two of the country's largest trade houses made niche purchases in the year that will give a nudge to sales and expand their presence in a hot market—religion. Early in 2006, Simon & Schuster acquired Howard Publishing to bolster its religion publishing program, while in the summer Random House added Multnomah to its religion portfolio. Random also added Triumph Publishing to its roster in 2006. Workman was another company that made two acquisitions last year, entering the spoken-word audio market with its November purchase of HighBridge and boosting its presence in the gardening area with the acquisition of Timber Press.
The combination of financial and strategic buyers has resulted in relatively high purchase prices. "There is lots of competition to get good companies," said dealmaker Martin Levin, who noted that while some companies are eager to get out of publishing because of the uncertainty of print's role in the future, there are still plenty of companies that have confidence in the publishing market. Specialty publishers command the highest prices, as evidenced by John Wiley's willingness to pay roughly 2.8 times sales for Blackwell Publishing and InterMedia's decision to buy Nelson for about 1.8 times sales. Pure trade publishers bring the lowest multiples, at about 1 times sales, the rate that Lagardere paid for Time Warner Book Group. Lagardere's purchase of TWBG highlights another factor keeping prices up—interest in U.S. publishers by foreign companies. "There is no question that international conglomeraters are still looking at American properties," said Warner (Van Tulleken specializes in cross-Atlantic deals).
The same factors that helped make 2006 a big year in the M&A field are carrying into 2007 and should make the new year another active one in the acquisitions area. "There is more money to buy things than has been available for some time," noted Halpern. One deal already brewing is for Thomson Learning, which parent company Thomson Corp. put on the market last fall; early speculation is that a financial buyer will end up with the educational publisher.
Selected Publishing Acquisitions, 2006
|Purchaser||Target||2005 Revenue ($ in millions)||Price ($ in millions)|
|Source: Reed Business Information |
|Ripplewood Holdings||Reader's Digest||2,390.0||1,610.0²|
|R.R. Donnelley||Banta Corp.||1,500.0||1,300.0|
|John Wiley||Blackwell Publishing||380.0||1,080.0|
|Lagardere||Time Warner Book Group||510.0³||537.5|
|InterMedia Partners||Thomas Nelson||253.0||473.0|
|Castle Harlan||Baker & Taylor||1,450.0³||455.0|
|Courier Corp.||Creative Homeowner||24.0||37.0|
|¹ Excludes assumption of $1.61 billion of debt.|
|² Excludes assumption of $800 million of debt.|