While the industry waits to see who the new owner of Simon & Schuster will be, another large trade publisher has been put up for sale: Houghton Mifflin Harcourt said it is exploring the sale of its trade division. Though not one of the Big Five trade publishers, HMH Books & Media is in the next tier, with sales in 2019 of $180 million.
Those sales, however, represented only 13% of HMH total revenue, with the much larger educational publishing division having reported sales of $1.21 billion last year. The trade division’s share of revenue will likely increase this year: while it reported $129.2 million in sales through the end of September, a 1% sales gain over the comparable period in 2019, the education group’s revenue plunged 46.3% to $698 million.
The struggles that HMH’s education group has encountered in transitioning from being a print-based publisher to a digital-focused publisher drove the company’s leadership to look for a buyer for the trade group. The pandemic has led to a big drop in sales of K–12 instructional materials—the Association of American Publishers put the decline at 21.4% through the first nine months of 2020—while accelerating the demand for digital content.
HMH explained the planned divestiture of the trade group by noting that the sale is part of its effort to make HMH “a pure-play technology learning company.” To achieve that goal, it implemented a restructuring in early October to cut costs and focus its energies on digital products. The action eliminated 525 jobs in the educational group, though the trade division was not affected.
In a conference call with analysts about HMH’s third quarter results, executives made it clear they see the future of the company in the digital world and will use the proceeds from the divestiture of the trade group to pay down debt and help fund the digital transition.
Among the objectives HMH’s ongoing restructuring has accomplished were eliminating “print-centric activities in marketing, product development, and fulfillment” and reducing the company’s investment in its “legacy technology stack,” CEO Jack Lynch explained during the call. The reorganization also cut 22% of HMH’s workforce.
The planned sale of HMH Books & Media has already resulted in the departure of president Ellen Archer, who moved to the company in early 2016 to replace Gary Gentel after he retired. Ed Spade, who most recently was v-p, sales and national accounts, and head of HMH Audio, will serve as interim president.
During her tenure, Archer emphasized using HMH’s intellectual property on different platforms by expanding its licensing operations and creating HMH Audio to meet the demand for digital audio. To reflect the company’s broader ambitions to be what she called “a multichannel publisher,” she rechristened the trade group as Houghton Mifflin Books & Media in early 2019.
Licensing was the key driver in HMH Books & Media’s 15.8% sales increase in the third quarter, accounting for $7.3 million of its $7.6 million in gains. The biggest chunk of licensing revenue, $4.3 million, came from the Carmen Sandiego series, which is appearing on Netflix. Sales of adult and young readers’ books were hurt by the closure of bookstores during the pandemic and the corresponding delay in releases of new frontlist titles, HMH said.
Possible buyers for the trade division include the same players who have been reported to be interested in S&S: Penguin Random House, HarperCollins, and Hachette Book Group parent Lagardère. At a considerably lower price than S&S (whose 2019 sales were $814 million), HMH could also attract additional buyers, including Amazon, which was reported to have looked into buying S&S, and private equity firms. It is possible that interested buyers will wait for the S&S deal to close and use its price to help assess the value of HMH Books & Media.
Naveen Chopra, CFO of S&S parent company ViacomCBS, said in a conference call last week following the release of third quarter results that the sale of S&S was proceeding, but he did not say when the deal would close.