Assuming HarperCollins’s agreement to acquire Harlequin for C$455 million (about $412 million) is approved by government regulators, the purchase will mark HC’s second major purchase in a little more than two years and further cements the company as the country’s second-largest trade publisher. In July 2012, HC completed its $200 million acquisition of Thomas Nelson.
For a company that was once viewed as the unwanted stepchild in Rupert Murdoch’s sprawling News Corp. media empire, the two purchases reflect the value placed on HC now that it is part of the smaller News Corp created last year to house the print-based News properties. In a statement announcing the Harlequin purchase, Robert Thomson, CEO of News Corp, observed, “this acquisition will broaden the boundaries of both HarperCollins and Harlequin, and is a significant step in our strategy to establish a network of digital properties in the growth regions of the world.”
The Harlequin purchase also matches the two main engines of HC growth that CEO Brian Murray spoke of in December when he told analysts that international expansion and digital content would be the twin drivers for the company. In an interview with PW, Murray emphasized that the Harlequin purchase will enhance HC’s global platform. “In one deal we have greatly expanded our international footprint,” Murray said, noting that HC will use Harlequin’s international infrastructure to offer its authors the opportunity to be published in as many as 30 languages. “This is a capability we didn’t’ have before.”
Murray said Harlequin’s core romance operations are “terrific” and did not see the need to make any changes. Harlequin CEO and publisher Craig Swinwood will remain in those posts and the company will stay in its Toronto offices. The two companies’ digital strategies are also closely aligned. Harlequin was one of the first publishers to move into the e-book market in a major way, and, at the end of 2013, digital content accounted for about 24% of its worldwide revenue. For the six-month period ended in December, digital content represented 19% of HC’s global sales.
Harlequin has long had among the largest operating margins in the trade book market, although those have slipped in recent years. In 2013, sales fell 6.7%, to C$397.7 million, and operating earnings fell 28.9%, to C$52.0 million. Still, an additional $400 million in sales will give HC annual total revenue of approximately $1.8 billion. In the fiscal year ended June 30, 2013, HC had sales of $1.37 billion and is on track to do about $1.4 billion in the fiscal year ending June 30, 2014 (its third quarter results are due out May 8). In fiscal 2010, HC had revenue of $1.23 billion.
Murray said that rather than looking for wringing efficiencies out of the Harlequin-HC merger, the focus will be on growth. Some operating efficiencies will likely come down the road, though. In remarks before analysts, Murray said the combination of Zondervan and Nelson had yielded more savings than the company had expected. While Harlequin has been very profitable, it will no doubt benefit from being part of a larger organization, something Swinwood alluded to in the press release. “We’re excited to be able to take full advantage of HarperCollins’s robust resources, scale and capabilities to expand the reach of our books, and grow our business,” Swinwood, who took over as CEO in January from Donna Hayes, said.