Among the spate of holiday shopping advertisements for good deals on presents, two acquisition deals occurred that are of particular importance to the library community. December began with news that Ex Libris, a ProQuest company, would acquire ILS vendor Innovative and ended with the announcement that OverDrive was being purchased by private equity firm KKR. Both deals are indicative of the consolidation and disruption that libraries and librarians are increasingly encountering.
Ex Libris Buys Innovative
With the Dec. 5, 2019, announcement that Ex Libris had signed an agreement to acquire Innovative, two phrases took center stage: Many librarians dubbed it “anti-competitive,” while information industry observers characterized it as “market consolidation.” Whichever phrase you prefer, it’s clear that this deal will change the library automation space.
The acquisition, scheduled to close in early 2020, will place Innovative as a business unit of Ex Libris that will report to Ex Libris president Bar Veinstein. Financial terms were not disclosed. In the press release, Veinstein says, “Customers of both Ex Libris and Innovative will gain from the companies’ proven record of innovation, greater combined resources, and talent with decades of library domain expertise.” Shaheen Javadizadeh, Innovative’s CEO only since May 2019, adds that the acquisition will give customers “more value.”
Ex Libris, which began in 1980 as a project at The Hebrew University of Jerusalem, was acquired by ProQuest in late 2015 from private equity company Golden Gate Capital. Its product line includes Alma and Rosetta for library management; Primo, Summon, Esploro, RefWorks, and Pivot for research and discovery; and campusM and Leganto for students and learning.
Innovative was founded as Innovative Interfaces, Inc. by Jerry Kline and Steve Silberstein in 1978, with headquarters in Emeryville, Calif. Its product lines include Sierra, Polaris, Inspire Discovery, and SkyRiver. Adding these to the ProQuest portfolio of companies and products gives Ex Libris a greatly needed boost in the public library arena, as it already has a strong presence in academic libraries.
Those worried that legacy products will be dropped can take comfort from Marshall Breeding’s observation for American Libraries: “[I]t is important to note that while there has been a narrowing of vendors, the diminishment of products has been remarkably gentle. Legacy products, even when seriously outdated, follow a long trajectory as they are phased out.”
Innovative has fewer customers than Ex Libris, but put together, Ex Libris and Innovative are far ahead of competitors in terms of market share. Within U.K. higher education institutions, for example, the combined companies moved from a 41.6% share in 2008 to 54.4% in 2019.
EBSCO Information Services’ response to the acquisition news was to issue, on Dec. 9, “A Message From EBSCO to the Library Community.” It stressed EBSCO’s commitment to open source products, particularly FOLIO. No other competitor followed suit.
Customer reaction was mixed. When told to expect the same customer service from Innovative once it is part of Ex Libris, one librarian groaned, not being a fan of the current Innovative customer service. Comments on social media seem evenly divided between those who abhor the system they currently use and those who are content with what they have. Those most affected are libraries in the process of migrating from one ILS vendor to another. If they were moving from an Innovative system to an Ex Libris one, or vice versa, they now are under the same umbrella. It makes a mockery of choice.
Roger C. Schonfeld pinpoints the larger implications of Ex Libris buying Innovative as a move away from locally hosted solutions to cloud-based systems. It weakens OCLC’s competitive position and puts more pressure on EBSCO. “Yet, insofar as a company gains so much market share that it is more focused on growth in adjacent market[s] rather than continuing to innovate the core business, that would be a deep concern.”
KKR Acquires OverDrive From Rakuten
On Christmas Eve, private equity firm KKR announced that it planned to put OverDrive in its Christmas stocking. It is acquiring the digital lending platform from Rakuten; OverDrive had been a wholly owned subsidiary since March 2015. Although financial details were not announced, Rakuten paid $410 million for OverDrive and had said it expected to report profits of around $365.6 million in Q1 2020. KKR’s investments also include RBmedia, Pandora, and WebMD. Kobo, however, stays with Rakuten. The possibility exists that OverDrive and RBmedia could be combined in some fashion in the future, as similarities certainly exist.
OverDrive, founded in 1986 and based in Cleveland, is well-known, particularly in the U.S. and Canadian public library market, and its reach goes to some 43,000 libraries and schools in 76 countries. Its Libby app enables patrons with a library card to borrow from its collection of 4.5 million ebooks, audiobooks, magazines, and other digital media produced by more than 25,000 publishers. OverDrive’s founder Steve Potash will continue as CEO under KKR ownership.
What worries librarians about KKR’s involvement with OverDrive is that it will follow a familiar pattern of private equity firms: regarding it as a short-term investment that will load the company with debt so that KKR can exit its investment after making significant profits. However, OverDrive may be able to take advantage of financial support from KKR to fund technological advances.
Breeding believes that Rakuten’s divestment of OverDrive so soon after acquiring it indicates that Rakuten could not achieve the synergies it expected. In contrast, KKR sees this as a financial investment. With the market dominance of OverDrive and the clout of KKR, there could be advantages for library negotiations regarding pricing and borrowing terms and conditions. Breeding writes in another post for American Libraries, “OverDrive often takes the blame for unfavorable licensing terms, but the company has a strong record of advocating for library interests.” He predicts that the area of digital lending “will continue to see commercial and nonprofit competition.”
Competition, Consolidation, and the Future of Library Automation
Both deals reveal the extent of declining competition and increasing consolidation in the library market. Several factors are at play. One is the role of private equity, both in acquiring and divesting library automation and library services companies. Another is the desire to dominate as many markets within the library community as possible.
Librarians worried about the lack of competition could spur more interest in open source and alternative systems. They can also hope for the introduction of more advanced technological solutions to their automation and lending problems. Whatever the impact of the December deals once they are completed, librarians will figure out how best to play the hand they’re dealt.