In a wide-ranging discussion at the Book Industry Guild of New York's February 21 meeting, two veterans of publishing's mergers and acquisitions scene talked about some of the long-range trends that have affected the acquisition field.
Perhaps the biggest takeaway from the evening was provided by David Lamb of Book Advisors LLC, who said the purchase price for the typical trade publisher is now about 70% of annual revenue, or seven times EBITDA (earnings before interest, taxes, depreciation, and amortization). Compared to sales a few years ago, which were usually based on one times annual revenue and 10 times EBITDA, that is no insignificant drop.
Despite the decline in prices, both Lamb and fellow panelist Robin Warner, managing director of Oaklins DeSilva + Phillips Investment Bank, agreed that acquisition activity, in the trade market as well as the education and technology markets, has been busier in recent years than it was following the Great Recession and the explosion of e-book sales. With e-book sales now more predictable, publishing executives have a better view of the horizon—even if that view is one of generally slow growth for the industry, Lamb said. The current environment, Lamb added, has drawn in strategic buyers (publishers looking to buy another publisher) and make it plausible for financial buyers (usually private equity firms looking to buy a company and then sell it in three to five years) to consider a publishing acquisition.
While deals are getting done, the process takes much longer than it did before the Great Recession, Warner said. "It can be a grueling process," she told the audience, noting that publishers today "are much more careful" about going ahead with an acquisition.
Strategic buyers are the most likely to do a deal in the trade space, and they are looking for a "perfect fit," Lamb said. That has led to more "list buys," purchases that usually involve one company buying the assets of another company without taking on many of its employees.
The types of companies that make attractive acquisition candidates have not changed much over the years, with one exception: a publisher that has had success with digital publishing. Otherwise, buyers are still looking for companies with great content, strong backlists, capable management, a recent history of sales and earnings growth, and projections for more growth, Warner said. A publisher that can offer a buyer a unique sales channel, one that they don't already have, is also an appealing target, Warner said, before adding: "corporate culture cannot be underestimated."
Since the meeting was held in a room full of people associated in one way or another with book manufacturing, a member of the audience asked if the current printing crunch has been factored into the pricing of companies. Lamb said that hasn't happened yet, but that it could become an issue in the future.