Kluwer Academic Publishers Sold to Venture Capitalists
Posted On November 4, 2002
Dutch publisher Wolters Kluwer has announced the sale of Kluwer Academic Publishers (KAP) to London-based private equity funds Candover and Cinven for approximately $591 million. Cinven and Candover will each contribute $106 million, and the management team, led by KAP CEO Peter Hendriks, will invest alongside them. As such, says Eric-Joost Ernst, an investment manager at Candover, the purchase could equally be described as an institutional buyout or a management buyout. Announced in October, the transaction is expected to be completed by early 2003.
Headquartered in Dordrecht, Netherlands, KAP is a leading international publisher of information for scientists in academic and corporate research functions. Its product portfolio includes approximately 675 scientific and technical journal titles, such as Catalysis Letters, Journal of Computer-Aided Molecular Design, and Materials Science; approximately 1,200 new book titles a year; and the Kluwer Online electronic platform. The company's turnover for the year to December 31, 2001, was $148 million. Of this, the journals accounted for around 70 percent and book sales 30 percent.
The news was widely anticipated following an announcement earlier this year that Wolters Kluwer was refocusing and would sell off non-core businesses. Commenting on the sale, Rob Pieterse, CEO of Wolters Kluwer, said, "Wolters Kluwer has realized an important strategic step in tuning its portfolio and intends to use the funds to expand further in its core activities: Legal, Tax & Business, Health, and Education."
In the wake of the sale, the Wolters Kluwer Health cluster (formerly the Health & Science cluster) will focus exclusively on the medical sector, specifically English-reading professionals in the global health market. The product portfolio currently includes Lippincott, Williams & Wilkins; Ovid Technologies (including SilverPlatter);Adis; and the recently acquired Medi-Span.
The news was greeted with speculation that the sale was a response to the threat posed by the increasing number of alternative journals being established by disaffected customers and the trend for researchers to self-archive their papers on the Web. "I'd like to believe that the sale was precipitated by the growing success of open access initiatives," says Peter Suber, author of the Free Online Scholarship Newsletter. He added: "Most scholarly journal publishers have no happy customers [since] they have adopted prices and licensing terms that anger libraries, their primary market. Kluwer was not very friendly to the interests of journal editors and readers."
Wolters Kluwer, however, denies this as a motive, arguing that the sale merely reflects the decision to focus on the company's strengths. "The leading player in science is Reed Elsevier, and they have a substantial lead," commented Wolters Kluwer spokesman Eric Heres. "Although we were an important player, we were not a leading player, and it was clear that to become one we would have had to invest a great deal of money. We decided, therefore, to focus on health—which is one of the most profitable markets in the world and one in which we are already a leading player."
For many, the real surprise was that the business was acquired by venture capitalists, rather than a rival publisher. With both John Wiley and Taylor & Francis rumored to have bid, Suber wonders why a publisher didn't outbid Candover and Cinven. "Do they see too much 'heat' in this market?" he asked.
The answer appears to be that Reed Elsevier has now put so much distance between itself and competitors that rivals are struggling to make the leap to catch up. Ernst estimates that Elsevier Science now has some 25 to 30 percent of the scientific and technical market, with second-tier players like KAP, BertelsmannSpringer, Taylor & Francis, and John Wiley able to command only around 5 percent each.
For this reason, suggested a Reuters report in August, second-tier players face real difficulties in raising sufficient capital for growth by acquisition. Both Taylor & Francis and John Wiley, the report predicted, would "find it difficult to raise the capital needed to make a bid because they are not substantially larger than KAP in size." Having to bid against cash-rich venture capital companies does not help.
Certainly these are interesting times for the scholarly publishing market. BertelsmannSpringer (with 650 journals and 24,000 book titles) is also currently on the auction block, and the future of privately held Blackwell Publishing (600 journals and 600 books) remains subject to speculation following family disagreement (see http://newsbreaks.infotoday.com/nbreader.asp?ArticleID=17166).
Rumor has it that Candover and Cinven also hope to buy BertelsmannSpringer. If they prove successful, a rival to Reed Elsevier could eventually be assembled outside of the traditional publishing industry. When asked to comment on this, Ernst replied: "I believe that in 5 to 10 years KAP will be part of a bigger entity. Whether that involves our acquiring other businesses, or whether in 5 years KAP will be bought by another, bigger entity, I don't know. What I can say is that we will be interested when the right opportunity comes along."
The attraction of STM publishers, adds Ernst, is that as significant cash generators, they are currently viewed as safe harbors in stormy seas. "In this market every title is so specific that it is a monopoly in itself, which is the attraction of the sector and why these companies are generally quite profitable. Certainly we believe that KAP is active in a market in which there is still growth, and which is stable and independent of the current economic climate."
This will likely be unwelcome news for customers. By bidding up the price of STM publishing assets, venture capital companies may indeed generate too much heat and in doing so intensify pressure to increase journal subscriptions.
Interestingly, had the planned $32 billion merger of Reed Elsevier and Wolters Kluwer taken place in 1997 (see http://www.infotoday.com/it/apr98/news2.htm), the STM publishing landscape would be very different today. The deal fell through when Wolters Kluwer sought to renegotiate terms with Reed Elsevier after European antitrust authorities indicated that they would require a substantial divestiture of titles by Wolters Kluwer before approving the merger.
Meanwhile, Wolters Kluwer continues to refocus. In the first half of the year alone it acquired 18 companies and in October announced an agreement to sell its Dutch trade publisher ten Hagen & Stam to Sdu nv. Also up for sale is Bohn Stafleu van Loghum, a Dutch-language healthcare publisher.