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M&A in publishing: how and why do they happen?
UKSG seminar, Copenhagen1 November 2007
Cliff Morgan,VP, Planning & Development Director,
John Wiley & Sons Ltd, Chichester
Why do they happen?• Same as for any other business:• Strengthen
- more (or better) of the same- increase market share- reduce costs
• Diversify- new subjects or services- wider customer base
Recent examples • 1/06: WK Health ProVation Medical (clinical tools)• 1/06: Elsevier HESI (health diagnostic tests)• 2/06: Wiley Fernhurst Books (sailing)• 3/06: CMPMedia (UBM) Mediworld (jnls in India)• 4/06: Elsevier Gold Standard (pharma info)• 5/06: Thomson CMR (pharma info)• 5/06: Sage Hodder Arnold journals• 6/06: Thomson Mercury MD (diagnostic support)• 6/06: Sage Westminster Press (med jnls)• 7/06: Advantage Business Media 19 B2B pharma titles from
Elsevier• 7/06: CUP CABI (primary jnls in agric and vet)
• 8/06: Elsevier IT/digital video/telecomms books from CMP Technology (UBM)
• 8/06: Walter de Gruyter KG Saur (library studies) from Thomson
• 9/06: Thomson ScholarOne (editorial office workflow)• 9/06: Vestar Capital MediMedia USA (healthcare comms,
publishing and patient education)• 9/06: Springer Humana Press (books and jnls in molec sci,
neurosci, cancer res and med)• 9/06: Thomson Solucient (healthcare decision support)• 10/06: Wiley Whatsonwhen (Web travel services)
• 10/06: SkillSoft NetG (corporate ed/training) from Thomson• 10/06: T&F Lawrence Erlbaum (books and jnls in psychol &
education)• 11/06: Wiley Blackwell (STM and SSH)• 11/06: Wiley HEED (health economics d/base)• 11/06: Williams lea TSO (from Apax)• 12/06: Riverdeep Houghton Mifflin (schools and HE)• 12/06: Wiley Carpe Diem (B2B food sci)• 12/06: Elsevier Syngress (computer security books)• 1/07: UBM MediReach (pharma marketing)• 2/07: Springer Transaction (SSH jnls)
• 3/07: Elsevier Beilstein (chem d/base)• 3/07: Springer Bohn Stafleu van Loghum (books, jnls,
multimedia for GPs, dentists, nurses etc.)• 3/07: Bridgepoint WK Education (K-12 and vocational)• 3/07: Thomson Unleashed Informatics (drug discovery tools)• 4/07: Penn Foster Holdings Thomson’s Education Direct
(correspondence courses)• 4/07: Veronis Suhler Stevenson Advanstar (B2B)• 5/07: Apax & OMERS Thomson Learning (remaining business
– school textbooks)• 5/07: Wiley Nautical Data (sailing & travel books)
• 5/07: Pearson eCollege (online tuition)• 5/07: Pearson Harcourt Assessment and Harcourt Int. (testing
and textbooks) from Reed Elsevier• 5/07: Thomson Reuters (news agency)• 6/07: Emerald Troubador (engng jnls)• 6/07: Thomson Health Care Data (h/care compliance)• 7/07: WK Law MediRegs (h/care research and compliance
s/ware)• 7/07: ETS (Educational Testing Service) Thomson Prometric
(educational tests) • 7/07: Springer Spektrum (mainly German-language books in
life sci, geosci, chem, maths) from Elsevier
• 7/07: Springer FMC (dentistry – B2B and events)• 7/07: Houghton Mifflin remaining Harcourt (US school
textbooks) from Reed Elsevier• 7/07: Informa Datamonitor (business intelligence)• 8/07: Symyx Technologies MDL Information Systems
(bioinformatics) (excl. Beilstein) from Elsevier• 8/07: T&F Productivity Press (business books, CDs)• 8/07: T&F Haworth Press (jnls and books in SSH)• 9/07: Thomson Prous Science (pharma d/base & tools)• 10/07: BBC Worldwide Lonely Planet (travel books)
How does it all happen?THE PROCESS• Discovery• Info memo• Valuation/modelling• Bid• Due diligence• Sale & Purchase Agreement• Completion• Implementation
Discovery• How do we get to know about an acquisition
opportunity?• A company contacts us directly• Or via a third party (a broker)• Or we contact a company directly• Or we get a broker to survey/contact
Brokers• Specialist brokers (Van Tulleken, Bertoli
Mitchell, St James Partnership, Fusion)• Auditors: PwC, Deloitte, Ernst & Young,
KPMG, Baker Tilly, Grant Thornton etc• Merchant or investment banks: JP Morgan,
ABN Amro, Berkery Noyes, Goldman Sachs, etc.
• Generalist brokers (IBIS capital, BCMS etc.)
• Lots of people out there wanting to bring opportunities to our attention
• But they may not all understand our business
Information Memorandum
• Aka “Prospectus” or “Book”• Should contain enough info to make a
bid• Cover letter should explain bid process
and timetable
Usually contains …• Overview of company/list/title: key
strengths, growth areas, reason for sale• Details re product or services: key titles,
subject areas, publishing pipeline, society relationships, ownership
• Sales & marketing: markets, channels, promo methods, subs models, discounts, representation
• Production, Distribution/Fulfilment, IT• Staff: key staff, overall numbers by function,
brief biogs, length of service/age, HR package (bonuses/commission, pensions, etc.)
• Property – owned or rented; periods of notice• Financial info: usually summary P&L for last 3
years + forecast and balance sheet for YTD and prior year
• Accounting policies (esp. re recognition)
• Clarify exactly what is being sold• Assets or shares?• Many deals these days are share
purchases – tax advantage for vendor
Valuation• Some companies, back-of-envelope based on
common industry multiples• Wiley – detailed corporate model (“sweat the
numbers”)• Note down all assumptions in the model• May need to hit various corporate targets
(revenue CAGR; payback period; internal rate of return with and without residual value)
The narrative
• Makes the case for the acquisition• What do we intend to do with the
company/list/title?• How does it fit strategically?• Request for formal approval
Bid• Specify who’s buying what from whom• Say how you’re treating DSR/DSL, net asset
valuation, etc.• Give timetable – due diligence, period of
exclusivity• Expiry date• Non-binding: subject to DD and contract
Due diligence• Four main purposes:• Confirm you’re buying what you think you’re
buying• Confirm the price is right• Inform the warranties and indemnities• Flag up implementation issues
What to look for• Legal – can it be sold? Is ownership clear?
Liabilities? All contracts• Contracts also looked at by functional area (Ed,
Prod, HR etc.)• Finance check all financials, etc.• Check databases, systems, stock, etc
What may DD lead to?• At worst: walk away from deal• May reduce price – but has to be legitimate:
something you found out in DD that you either couldn’t have known or was wrong in I.M.
• Deal with under warranties• Ideally, confirm price – or even increase
SPA
• Sale and Purchase Agreement• Aka Business Sale Agreement• Sometimes Share Purchase Agreement or
Asset Purchase Agreement
• SPAs can be very long (e.g. 140 pp)• Purchaser usually draws up – it’s their
risk• The SPA is the contract
Implementation• May be able to do some pre-completion
implementation• But usually implementation hits on completion
…• …with a whole load of staff resentful about
being left out until this stage
• Important therefore to have implementation meetings immediately – get buy-in
• Work out the implementation issues beforehand and assign process owners
• Product, processes, procedures, people, policies
Legal• Review all contracts (au’s, ed’s, suppliers, freelancers)• Copyright transfer – practice and policy• Collective licensing mandates• Data Protection Act compliance• Permissions – policies and procedures• Licences• Trademarks, domain name registration and renewal• Archiving of records (retention and destruction)• Leasing arrangements (property, equipment, cars)• Planning applications (property)• Legal actions being pursued
Finance• Merge systems• Processes – purchase orders, invoicing, credit• Integrated fixed asset register – confirm value of assets• Integrate budgeting process (maybe change fiscal year)• Common terminology and accounting for revenue, margin,
operating profit, etc• Common recognition of income policy• Common treatment of depreciation and expenditure• Consolidate a/c payable and a/c receivable database• Bank mandates• SOXA-ise!
Editorial• Structure and processes; merge databases• Identify synergies, e.g. sales of reprints to pharma• Specific portfolio issues, e.g. combine products?• Editorial office management systems• Opportunities for spin-offs• Forge relationships with societies and editorial boards
Marketing• Structure and processes (e.g. marketing design); merge
databases• Branding• Combine marketing collateral; include in catalogue• Harmonise on subject categories• Integrate exhibitions activity
Production• Structure and processes; merge databases• Review all suppliers – may renegotiate ‘cos of scale• Check format specifications ( paper sizes, DTDs,
digital manifests, metadata, filenaming conventions)• Digital archive process• TRANSFER issues, e.g. DOI resolution
Sales• Structure and processes; merge databases• Review prices and discounts (incl. intercompany)• Review exchange rate policies • Harmonise returns policy• Review licensing models (incl. consortia deals)• Familiarise sales force with new product• Review 3rd-party repping agreements
Journals Fulfilment• Structure and processes; merge databases (e.g. address
fields)• Review and merge fulfilment systems• Harmonise renewals process• Inform ISSN centres of change of ownership
Book distribution and customer service
• Structure and processes; merge databases• Familiarise with new product and new customers• Assign new ISBNs from next reprint• Relocate stock• Harmonise policies on remaindering or stock
destruction• Cancel 3rd-party distribution contracts
IT and Web publishing• Structure and processes; merge databases• Review all IT systems - mainframe, intranet, PCs,
laptops, PDAs, e-mail• Review all policies – lease vs buy, out- vs in-source,
back-up procedures, disaster recovery, access privileges, security, maintenance contracts
• Review web publishing platform
Facilities• Structure and processes; merge databases• Arrange office moves• Harmonise purchasing arrangements, including utility
suppliers, insurance arrangements, stationery, etc• Harmonise telephone system• Deal with any property or movement of fixed assets
issues
HR• Structure and processes; merge databases• Harmonise terms and conditions• E.g. job titles; salaries; bonus schemes; pensions; cars; private health and
life insurance; holiday entitlement; sick pay; maternity/paternity leave; share options
• Harmonise policies• E.g. T&E; Working Time Directive; compassionate leave; performance
reviews; business conduct; use of phones, e-mail, internet, etc.; grievance and disciplinary procedures; training and development; salary reviews)
• Organization charts
Strategy
• Agree common policies and direction
That’s all there is to it
• Any questions?