BertelsmannSpringer Is Sold to Private Equity Firms
Posted On May 27, 2003
German media and entertainment company Bertelsmann has announced the sale of its academic publishing group BertelsmannSpringer to the European private equity firms Candover and Cinven for 1.05 billion (about $1.23 billion). The two buyout specialists, which will take equal equity stakes, are thought to have bid more than two other rival groups. One was led by former Springer CEO Jurgen Richter, and backed by the venture capital (VC) firms Blackstone and CVC Capital Partners; the other was a joint approach by U.K. academic publisher Taylor & Francis and VC company Apax Partners.
Although the whole business is being sold, at the time of writing it remained to be determined whether Candover and Cinven would acquire BertelsmannSpringer's activities in France. Once the sale is complete, the company will be merged with Kluwer Academic Publishers (KAP), the scholarly publisher acquired by Candover/Cinven last year for about $600 million (http://newsbreaks.infotoday.com/nbreader.asp?ArticleID=17055).
The combined group, which will be renamed Springer, will have revenues of around $1.03 billion, making it the second largest academic publisher, with an estimated 10 percent of the market. This will be twice the size of competitors Wiley, Blackwell Publishing, and Taylor & Francis, but still some way behind Elsevier Science, thought to have around 25 percent of the market.
Specializing in trade and science literature, BertelsmannSpringer publishes more than 700 journals and trade magazines and over 4,000 new book titles a year. The company comprises 70 publishing houses and has over 5,000 employees in 16 countries. It was created from the acquisition of Springer-Verlag by Bertelsmann in 1999, although Springer itself dates back to 1842.
"The acquisition is good news for us," says Sabine Schaub, a BertelsmannSpringer spokesperson. "The new owners have presented a convincing strategy and it is good that we are moving from Bertelsmann, where we were not part of the core business, to a new owner where we will be."
"The Springer management has never been particularly happy under Bertelsmann, so they are probably delighted," concurs Bob Campbell, president of U.K.-based Blackwell Publishing. "When Bertelsmann bought the company it promised to make huge investments to get them into the electronic publishing era, but that never happened."
The main challenge for the new owners, adds Campbell, will be to successfully integrate the two companies. "BertelsmannSpringer is a much bigger, more complex business than KAP. It is going to be a significant management load trying to merge that with KAP, and to get the hoped-for synergies. And Cinven and Candover have made a huge investment at a point when the market is becoming more competitive than ever."
The consensus is that Candover/Cinven have paid top dollar. In addition to the 1.05 billion ($1.23 billion) price tag, they have agreed to take over pension liabilities of 120 million ($140 million). "We think we paid a reasonable price for what is a high-quality asset with a lot of potential for profit growth," comments Candover director Simon Leefe.
What impact will the acquisition have? "From the perspective of the largest publishers this deal is a good thing," says Mark McCabe, an assistant professor in the school of economics at the Georgia Institute of Technology who studies the journal market. "The stock prices for Reed Elsevier and Wiley both jumped on the merger's announcement. One explanation for this is that the merger will result in higher prices for the affected titles, allowing Wiley and Elsevier to raise prices as well. As for users, it's more bad news."
Having witnessed so many mergers and acquisitions in recent years, the user community reacted with resignation. "The price paid suggests that knowledgeable investors believe there is still a lot of money to be made out of STM publishing," says Andrew Odlyzko, director of the University of Michigan's Digital Technology Center. "Libraries should prepare for aggressive price increases."
Some, however, believe that the new owners will struggle to recoup their investment. "I do not see how either KAP or Springer can reasonably expect their earnings to continue at anything like the present rate for more than a year or two further," comments one U.S.-based academic librarian, speaking on condition of anonymity. "Whether the purchasers do not understand the prospects for the industry, or whether they are simply insanely optimistic, is not something I can distinguish."
Such views are based on the now widespread conviction that STM publishers have been systematically overcharging customers, leading researchers to respond by adopting alternative publishing models, not least through self-archiving their papers on the Web.
"If publishers charged reasonable prices, they could sustain their business model indefinitely," comments Peter Suber, author of the Free Online Scholarship Newsletter. "But they are giving momentum to an alternative publishing paradigm that will undermine them. Scientists are increasingly taking their intellectual property and editorial labour to new open access' journals that serve knowledge rather than stockholders."
Others suggest that a more immediate threat to publishers lies in a growing mismatch between rising journal prices and declining library budgets. "I suspect that the financial problems of libraries will reach criticality earlier than the preprint server take-off," comments the academic librarian. "My estimate is 2005 if not 2004."
Leefe is unfazed by such talk. "Based on our experience at KAP, which we have owned now for a few months, and from the research we did on Springer, we have no sense that budgets are in decline. They may have come down a little over the last few years, but they are still growing overall. The academic publishing market is a great industry, and has produced reasonably strong growth rates through thick and thin."
Whatever the future holds, the publisher most disadvantaged by recent developments is surely Taylor & Francis. Having failed to acquire KAP last year and BertelsmannSpringer this year, many believe it lacks critical mass at an important moment of industry transformation. "It also lacks an international sales force, and its own online delivery system," comments one industry source.
Taylor & Francis' controversial attempt to launch a hostile bid for privately-held Blackwell Publishing last year has not helped its reputation. The problem, says Campbell, was that Taylor & Francis' overtures were, and remain, a non-starter. "The Blackwell Publishing board has never had any interest in talking to Taylor & Francis about a sale." It was not possible to reach a Taylor & Francis spokesperson before going to press.
Commenting on the sale of BertelsmannSpringer, Elsevier Science chairman Derk Haank told the Dutch newspaper Het Financieele Dagblad: "It is good that there will be another party able to invest in electronic platforms. We will watch any new development with interest."