Private Equity & the Publishing Industry

Posted on June 4, 2007


Apax acquired Thomson Learning for over $7+ billion – nearly the same sale price as Chrysler!

Pearson plc recently acquired eCollege for approximately $500 mln., despite Pearson’s strategic partnership with Blackboard, Inc., a direct competitor to eCollege. Additionally, this price reflects a value nearly equal to eight times revenue and 20 times EBITDA.

I am closely monitoring the current and proposed transactions in the publishing industry. With over seven years of experience in this industry, I believe that there are significant inefficiencies that exist within the market participants. The major publishing houses maintain internal brand and production silos within their organizations, often duplicating product development, sales, and distribution services. In these cases, there are opportunities to divest these brand silos individually, with the sum of parts worth more than the whole and thus providing an opportunity for an experienced private equity fund to execute these transactions profitably.

In addition, traditional publishing companies have been challenged by an increasing number of distribution competitors, such as used books sellers overseas and new technology companies offering customizable, user-generated content. Companies with modernized distribution channels versus traditional publishers (such as the relationship of News Corporation and Dow Jones) will be able to leverage these channels to better meet market demands, and again give rise to a profitable outcome.

These industry conditions present an interesting value proposition for private equity firms experienced in capitalizing on these types of market inefficiencies, resulting in more effective and profitable companies. I suspect that this may be a main proponent of Apax Partners’ cash purchase for Thomson Learning, a price considered to be exorbitant by some executives within the publishing industry.