In a move that some in the industry will welcome as putting at least a temporary stop to industry consolidation, the private investment firm KKR has reached an agreement with Paramount Global to acquire Simon & Schuster for $1.62 billion in an all cash transaction.
Though below the $2.175 billion that Penguin Random House had previously agreed to pay for the country’s third largest trade publisher, $1.62 billion is a healthy price since most trade publishers sell for not much better than 1.5 times sales, and S&S’s 2022 revenue was $1.18 billion.
"We are very happy with this deal," Paramount CEO Bob Bakish said during an August 7 earnings call. "As we've discussed before, Simon & Schuster is a fantastic asset. But from a strategic perspective, it's not core to our mission of creating and monetizing world class video entertainment. And we think we found a very good home for S&S with KKR. Importantly, this transaction checks all the boxes from a financial perspective."
Bakish said Paramount expects to "yield approximately $1.3 billion in net proceeds" from the sale, which the company reiterated would be used to pay down debt. Overall, Bakish said the $1.62 billion sale price plus the $200 million termination fee paid by Penguin Random House after last year's deal was blocked by regulators, plus the cash flow gained from strong sales from S&S over the last year, means the company will "realize approximately $2.2 billion of gross proceeds" from the S&S sale.
When the deal closes—no date has been given—S&S will become a private company. S&S will continue to be led by CEO Jonathan Karp and Dennis Eulau as COO and CFO.
In making the announcement, KKR promised to “support numerous growth initiatives, including extending Simon & Schuster’s strong domestic publishing program across various genres and categories, expanding its distribution relationships and accelerating growth in international markets.”
That promise signals a change in direction for S&S employees, who have received little support from Paramount following the failed PRH deal, as Paramount viewed the publisher as a discontinued operations while it looked for a new buyer. Despite this, S&S employees managed to produce a record year in 2022.
In his letter to employees, Karp noted that KKR’s “commitment to growth is one of the reasons I’m so glad KKR will be our next owner.”
A private equity firm's acquisition will be viewed negatively by many who will be concerned that KKR will put profits over literature. Others, however, will see KKR's as better than S&S being bought by one of its competitors. The government trial that blocked the PRH deal made clear that most industry members did not want S&S to be acquired by another member of the Big 5; HarperCollins, which bid for S&S when it was first placed up for sale, was also bidding for the publisher in the newest sale process.
During the trial, most agents, authors, and booksellers favored a deal which would keep S&S a major player in the trade market, so that it could continue to offer another option for agents to pitch books. Meanwhile, booksellers were wary of PRH having too much clout in the marketplace in setting terms for not only a combined PRH/S&S list but all of the combined company’s distribution business. Even inside S&S, a private equity owner didn’t seem like such a bad idea when it was revealed during the PRH trial that the publisher hoped to save $81 million in costs by integrating such functions as distribution, warehousing, and certain administrative and managerial functions.
A statement released by the Authors Guild reflected some of the mixed feelings about the KKR acquisition. The guild said it hopes KKR "will defer to the editorial leadership at Simon & Schuster, recognizing that publishing is a unique business model that requires vision and creativity in ways that don’t always justify themselves on P&L sheets." The guild added that it also hopes that KKR knows S&S is already a lean company, "that cannot afford to lose employees or have editorial decisions and processes undermined."
Some S&S employees were likely heartened by KKR’s pledge to create “a broad-based equity ownership program to provide all of the company’s more than 1,600 employees the opportunity to participate in the benefits of ownership after the transaction closes.” Under a similar program that KKR implemented at audiobook publisher RBmedia, employees stand to earn up to two years salary when that transaction closes later this year.
The KKR deal also brings Richard Sarnoff, chairman of media at KKR, back to the heart of publishing. Sarnoff played a key role in making Random House the largest trade publisher in the country, having been one of the architects of Bertelsmann’s purchase of Random when he was CFO of Bantam Doubleday Dell. After the merger—and before RH and Bertelsmann bought Penguin—Sarnoff spearheaded RH’s efforts in such areas as new media and acquisitions.
In his letter, Karp noted that he has known Sarnoff for two decades when they were both at RH, writing, “Richard understands the nuances of the book business as well as anyone I know.”
In his prepared remarks, Sarnoff said, “We see a compelling opportunity to help Simon & Schuster become an even stronger partner to literary talent by investing in the expansion of the company’s capabilities and distribution networks across mediums and markets while maintaining its 99 year legacy of editorial independence.”