No one in the industry was surprised last week when HarperCollins emerged as the buyer for Houghton Mifflin Harcourt Books & Media, the sixth-largest trade publisher in the U.S. Ever since HC and its parent company, News Corp, lost out to Bertelsmann’s Penguin Random House in its bid to buy Simon & Schuster last November, HC was seen as the favorite to acquire the HMH trade operation, which parent company HMH put up for sale last fall. The biggest question mark was what the purchase price would be. The answer is $349 million in cash.

HMH trade had 2020 revenue of $192 million, giving the deal a multiple of 1.8 times revenue; by comparison, PRH is paying $2.175 billon for S&S, roughly 2.4 times its 2020 revenue of $901 million. S&S has been consistently more profitable than HMH trade and has a much bigger footprint in all areas of the industry, but analysts see the $349 million price as fair, given that in the ever-consolidating trade book business, there are few companies remaining that can significantly move the financial needle for a publisher looking for meaningful growth. The HMH purchase will keep HC firmly entrenched as the country’s second-largest trade publisher, with revenue of about $2 billion.

At the old News Corp, HC was a smaller part of the conglomerate, which included television and movie studios. But those properties were spun off in 2013 into Twenty-First Century Fox, and HC is much more important to the current News Corp; it has been called one of the three pillars of the company’s growth by CEO Robert Thomson. In 2014, about a year after the corporate split, HC paid C$455 million for Harlequin, which had revenue of C$398 million in 2013 (giving it a sale multiple of 0.9 times revenue, much lower than what HC is paying for HMH) and operating income of C$52 million (11 times earnings). And under CEO Brian Murray, HC has largely delivered for News—including last year, when it had a record-shattering fourth quarter, with sales up 23% and profits jumping 65% over the fourth quarter of 2019.

To keep growing in what is, overall, a generally flat trade market, publishers need to make acquisitions, and in an interview with PW, Murray called HMH a great fit with HC. Murray said HC is in a much better position to exploit HMH rights and content than the trade publisher was able to do as part of an educational publishing company. “There is much more opportunity [for HMH] being part of another trade publisher,” Murray said. He noted that in previous acquisitions, such as with the purchase of Harlequin, newly acquired operations were able to take advantage of HC’s international presence and other partnerships to grow outside of their core markets, and he believes that will be the case with HMH.

Murray is particularly excited about HMH’s backlist of 7,000 titles, which according to News generated about 60% of HMH’s revenue last year. “There is no other catalog like it,” Murray said. He also pointed to the company’s media production operation. In 2020, licensing revenue generated about $13 million for HMH, a figure that includes $3.4 million from a long-term agreement with Netflix for rights to its Carmen Sandiego property. HMH’s ties to the film, TV, and streaming world could help HC properties find new partners.

Meanwhile, HC’s audiobook operations will help HMH’s audio business. HMH only began doing its own digital audio production in 2019, and Murray said that as rights previously sold by HMH expire, HC will keep them in-house.

In addition to boosting HC’s sales, the integration of HMH, News Corp said, should allow it to find annual cost savings of $20 million. That same $20 million cost savings target was achieved following HC’s acquisitions of Thomas Nelson and Harlequin, which both occurred during Murray’s tenure as CEO.

Murray said HC will not start integrating HMH until after the deal closes, but he has had a chance to talk with the various HMH teams and thinks bringing the publisher on board will be straightforward. “HMH fits like a glove,” he said.

While News said it hopes to complete the sale by June 30, there is a potential complication—the ongoing government review of PRH’s purchase of S&S. The HC purchase is not nearly the size of PRH’s acquisition, but until regulators are finished with the review of the S&S deal, the HMH review could be stalled.