Jan
15
The Ultimate Question is Scale
Filed Under Big Data, Blog, Education, eLearning, Industry Analysis, internet, Publishing, Reed Elsevier, STM, Workflow | 2 Comments
How big do you need to be to succeed? In this age of internet service and content consolidation the urge to be large seems almost irresistible. You have to be big enough to be a one stop shop, or big percentage thereof. You have to be big enough to enable the technology spend, and get its paybacks. As content gets increasingly commoditized, you have to be big enough to move up the value chain with your users, and to buy into innovative smaller players at the right time. Above all, if consolidation is, as I have long maintained leading to information market sectors with two, or three big players and a host of smaller ones, you need to be in the First Division if you aim to influence market behaviour, pricing, access and discoverability rather than be driven by them These thoughts come immediately to mind while thinking about today’s news of the “merger” between Springer and Macmillan.
I have put “merger” in inverted commas because you could also describe this as a German dynastic marriage, or indeed you could describe it as an acquisition, since the architect of the deal, Stefan von Holtzbrinck, ends up holding 53% of the equity. Holtzbrinck, of course, remains a family company and started as a major player in German national and regional newspapers. Like another family company, DMGT, this generation has seen the instability of basing the family wealth solely in newsprint. DMGT, through diversification supported and encouraged by Vere and then Jonathan Harmsworth, is now a B2B company with a minority proportion of its activity in newspapers. The Von Holtzbrinck route was different, but ends in the same place: the minority of its interests are now in scientific information, academic publishing and education. The critical threat that the demise of newspapers would sink the family ship is now over.
And over in a very clever way. Keep “merger” in quotes. While Macmillan always had to get bigger to become a rival to Wiley in a market dominated by Elsevier, Springer always had to sell. It has had so many suitors over the years that it qualified for a place on Parship, the Holtzbrinck dating site. The current relationship with BC Partners is a tertiary private equity deal, something unheard of before this century. But the result of Cinven and Candover buying the decaying hulk of Springer from Bertelsmann was a clean-up, followed by a sale to EQT and GIC. Which was followed by more streamlining and margin improvement and a sale to BC Partners for 3.3 billion euros. There could have been little improvement to be made this time round. Springer had recreated its Springerlink online platform and the company is undoubtedly back amongst the market leaders in terms of profitability, so the only way to go was a trade sale. The solution in this deal is just that, staged to the benefit of both parties. BC get to exit their 47%, possibly via an IPO, in the next three years, at an enhanced valuation secured through the Macmillan assets, and especially Nature Publishing. Holtzbrinck get a satisfying revaluation of their Macmillan purchase when the IPO goes through, and probably an opportunity to grow their stake. So both can go happily hand in hand to the German regulator, and get a big tick for accomplishing one of the prized national objectives – keeping Springer, the historical home of German chemistry as it reshaped late nineteenth century science, as a German company. Finally, as you look at this deal, do the maths. Holtzbrinck have merged into this deal their assets at Macmillan to form a company worth 5 billion euros. Their partner put in a company worth 3.3 billion euros two years ago. Holtzbrinck get 53%, depending on how much debt is left in 2-4 years time , and how much of this the partners decide to turn into equity. Sounds good to me!
It could have been so much worse for Springer, though. The perpetual arranged marriage for Springer was always going to be Informa’s Taylor and Francis. It almost came off twice. but the in-laws came to blows at the altar rail. Then people like me bet on Springer, always underexposed in the US, being merged with Thomson-Reuters Healthcare (now in PE hands as Trueven) or Thomson-Reuters Science (still oddly outside of the parent’s finance-law corporate vertical). Wiley was even mentioned as a possible deal, though this always seemed unlikely. But the new marriage, with a market cap, remember, of around 5 billion euros, has desirable scale, and both players together make a powerful force in Open Access and can use their joint capacity to operate effectively as data publishers as science wants more and more experimental evidence linked to articles and made available on time and alongside.
And of course there is more than science in this deal. The Education interests of Macmillan, with some exceptions, are in the mix, as are the now much diminished B2B interests of Springer. Rather more interesting is what is left out on the Macmillan side. No private equity player looking at a forthcoming marriage of convenience would want to see assets included that were under a cloud or had yet to yield a margin. And Springer’s margins , which the current management have recovered from their previous deeply unimpressive levels , are now above the industry average and almost certainly better than Macmillan. The whole US Higher Education market is fairly cloudy, which may explain the exclusion of Bedford from the deal. Macmillan consumer publishing is just irrelevant to all this. And the seed investment areas are just too far from profitability, so they stay with Holtzbrinck, giving that company another bonus. There are some great growth points in these seed beds. Just imagine, looking at the ReadCube venture in Macmillan Digital Science, the effect of using that platform, already in Wiley and Nature, in Springer. That is the good thing about scale – you can build quickly.
The final question we need to ask is how all this can be managed. Annette Thomas goes onto the Springer board as Chief Science Officer, joining Derk Haank, CEO, Martin Mos (COO) and the Springer CFO. As indicated in the last blog here, Annette’s style has been innovation and adventure. Her Dutch and German colleagues on this board have built through more conservative policies. A big priority has been securing the management team pay-outs that three rewarding deals in 15 years can secure. By some estimates those rewards would now buy a small European country, let alone a farm at Groningen! Such things are not secured by high risk investment. As a team these people are the most experienced STM players anywhere: what we now need to see is how well they perform as a management team. This is not the least interesting part of this deal.
Jan
6
Leaders and Insurgents
Filed Under B2B, Blog, data analytics, eBook, Education, eLearning, Industry Analysis, internet, online advertising, Publishing, Search, STM, Uncategorized, Workflow | 2 Comments
Lying on my back this last month, recovering from spinal surgery while keyboarding with difficulty, I have had plenty of time to reflect on the industry while not quite having the energy to respond to what I read. Yet amidst the flow of fatuous nonsense that surrounds the interesting and insightful, the faux management guru who pronounced on how hard it was for a leader to be an insurrectionary, and how change could not be expected from businesses that had “transitioned”, got my goat so royally that I am still vibrating with indignation, even now that I am mercifully sitting upright again. And to compound this I missed all the countless award ceremonies and suchlike so I feel out of it. So here come my own awards – For Insurrectionary Leadership of Traditional UK Information Companies in 2014. These awards have not (I hope) been checked for compliance with diversity, gender equality, or any other of the social requirements of modern life. But they do reflect my absolute conviction that the right people in leadership positions can change everything; that from business model to innovation style, everything can be re-invented; that real leadership attracts support, from colleagues and investors, only if it is prepared to question the fundamentals at each phase of our discovery of the challenges and opportunities arising from living in a networked society/economy.
So, without more ado (drumroll), let me introduce my joint winners of this distinctly un-prestigious award. Neither of them work in sharp and shiny Shoreditch start-ups, but in companies which, when last sold by their traditional owners, were seen as commoditised smokestack businesses which had run their course. Today both of these companies are seen as leaders in their respective sectors, reaching global markets with brand enhanced prestige. Significantly, both of these companies were able to recruit senior management in 2014 at a very high level because they were perceived as change agents. Equally impressive, especially for me (having railed at traditional players who did not understand their new users for 30 years), both of these companies are widely seen as being close to users in service value and understanding. Yet, when I first knew these companies in the 1970s, both were subscription based publishers who seldom encountered a user in the flesh, so safely were they protected from reality by library and institutional subscription services. Both had an advertising base which they have had to re-invent. Neither had an automatic access to investment capital and both had to earn their inputs either from private equity or within a corporate ownership where there were other choices.
So as well as a restless questioning of the way business was done, and an ability to get into the place of the end-user and visualize value, both of my winners needed tireless advocacy, and the ability to win hearts and minds and trust. I am sure (omelettes/eggs syndrome) that each has made some mistakes, and that some who got moved on or out – in the disruptive course of change – will feel cause to argue my choices. But at the beginning of 2015 I see no companies that stand higher in the estimation of their users than Macmillan Science and Education, and the newly renamed TES Global. My awards therefore go jointly to Annette Thomas and Louise Rogers.
Of course, there is always more to do. The Education side of Macmillan, for example, remains in transition. But for a company founded in the second half of the nineteenth century, its renaissance in a digital world is remarkable. In 2015 I really appreciated how the use of Macmillan’s Digital Science as a greenhouse for investment in start-ups critical to the future role of researchers was blossoming into the development of investments like ReadCube as hub technologies around which other players, like Wiley in one example, could develop their own access and distribution strategies. In other words, do not compete with your old rivals: work on capturing the new value points. Users will recall 2014 as the year when their subscription value to Nature and its journals reaped additional value through the release of access controls for subscribers. And many of staff will recall the year as their first on an integrated campus site in Kings Cross which brings benefits in communication, and understanding of the whole customer base. Things will continue to change, especially as Digital Education as well as Digital Science, makes a contribution, but for the Holtzbrinck family investors, who bought from the Macmillan family when their nerve failed and whose courage has backed Annette and her talented team, there must be great satisfaction at the value enhancement here, as well as the return.
At TES Global the picture is very different. The Times Educational Supplement and its smaller sister, the Times Higher Educational Supplement, were sold by Murdoch’s News International when he persuaded himself that advertising teaching jobs in the UK would be done on government websites and was thus a dead duck. Two private equity owners have since made real money from this supposed write-off, and a third is shaping up to do the same. Not only have traditional markets been held but taken online and increased. TES Connect, a resource sharing innovation developed to allow teachers to share their own work and lesson plans, commands a global marketplace and has a joint venture with a major US teaching organization. 2014 will be recalled as the year when the new PE owner decided to back management in buying relevant tech companies in Silicon Valley to support this global growth and delver fresh layers of value as a way of getting a leverage on the value added through the resource sharing process. And to widen the market by acquiring agencies in areas of recruitment that the company never previously considered. Here is another company, a child of the great age of late nineteenth century print dominance, which has shown how determined questioning of the status quo can recreate value. As expansion opportunities now appear, 2014 saw several high level managers with new skill sets arrive to take up the challenges. And it was the year when it changed its name – to better reflect the TES brand it has so completely rebuilt.
My two award winners are very different, but share much in common. One has a background as a science researcher, the other as a B2B magazine publisher. Yet both understand the culture of users online in a way that has evaded many of their contempories. Both understand the workflow of their users and how their services must add critical value. Both have been prepared to take historic business models and shake them until they worked, or new ones were ready for adoption. But for me, the award goes to them because they were both prepared to lead change from the CEO position. They have demonstrated that they are prepared to dare to be wrong. This quality is called courage, and there is less of it about in the information industry than we need at a time when the speed of change is ever quickening.