Aug
24
At the Consolidation Station
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These are strange twilight times in M&A in scholarly communications. Everything should be happening. Not very much seems to be happening. So we turn to the traditional reasons. Is there a shortage of investment in the market? Private equity signals that this is not so. Are strategic buyers so dominant that that they are creating price levels at which PE cannot operate? No evidence of that either. Are margins so diminished that buyers are doubtful about mid term growth? No evidence of that, though we all justly fear the future in terms of library budgets and research spending. Are research article submissions slowing? On the contrary, since the start of the year and the pandemic, they have hit record highs. Have preprints ruined the market, as one commentator loudly claims? No evidence for that either. So why the apparent hesitations of the last nine months?
A reasonable person might reply that pandemics and recessions can cause investors to hit the pause button. This is both reasonable and true were it not demonstrable that downturns and disasters all diminish prices, and for some classes of investors, particularly private equity, having capital to hand creates a pressure to put it to work. And PE companies are still doing exits and raising funds. So let’s look at what scholarly communications offers as an investment opportunity and see if lack of attraction there is delaying long forecast consolidations.
There are four clear investment pathways in the sector: subscription journals, OA, scholarly societies and workflow tools. Given that the biggest players in the sector are now so big that further acquisitions may attract regulatory and anti- trust investigation, there is an inhibition around growth in traditional journal purchases, but how would that apply in Open Access terms? Elsevier are widely said to be the largest Open Access publisher in the market – could they be accused of unfair market dominance if they added one of the pure play OA publishers of scale currently tipped as being for sale? Certainly there would be delay and investigation, but interesting arguments could be made that OA publishing did not exert the same market impact as the huge Big Deal dominance of the major subscription players in previous times.
But think of it also from the other direction. What is the dominance exerted by transformative “read and publish” agreements? A publisher who has signed up 75% of the research institutions in a particular sector might be thought to be exerting a market pressure as dominant as one who had creamed off 60% of the traditional paid for subscription allocations in the same institutions? Or perhaps more dominant? We have yet to let the lawyers into this argument but in times to come they will enjoy it!
So one line of investment is clearly to buy a big OA specialist, merge it with another one and challenge the market leaders. But would they be challenged? What is the intrinsic value of an OA portfolio. If it’s brand, then the evidence is that it can be grown quickly. If it is editors with reputation, editorial boards and market relevance then these are subject to market forces and very replicable. There is of course no value in copyrights since these rest with authors. There will be value in the deals that have been made that fix in place for a period of years, now typically three, the possible, but not usually exclusive flow of submissions. And thus there will be valuations of the cash flow from APCs. This in turn may be slightly chilling market appetites, given the downward pressure on APCs. Yet PLoS have shown that an inclusive publishing contract model can be made to work – will it work for commercial OA as well as not for profit OA?
There will of course be traditional publishing investment and consolidation, and this will mostly revolve around what we might call Endowment investment. It has happened in the recent past in the sports sector (the English Rugby Union and CVC is a case in point) and it could well apply to PE players looking at scholarly societies, beset by the risk to their underlying income in going OA, and seeking to create endowment income by inviting third party investment in their journals. Many societies, large and small, have debated this one. The IET in the UK reduced the risk of the transfer to OA by a joint venture with Wiley. There will be a great variety of solutions to a problem whose resolution depends on the society’s current assets and its future running costs.
Other investors will take the view that investing in any form of journal publishing is yesterday’s business. Now is the age of services and solutions. Real growth, though unproven margins, lie in analytics and tools and scholarly workflow. Elsevier buying SciBite today is interesting, and typical of the relatively small scale of these deals. Others dream of investing in some science park AI and injecting it into the support framework to create must have acquisitions that the big players will need as margins in traditional journal publishing diminish and the big players are forced to diversify across the value chain.
And what about those big players now? Springer Nature May be thought an unlikely investor while its own investment relationship with BC Partners remains unresolved but it’s majority shareholder, Holzbrinck, has an interesting asset in Digital Science. How this portfolio of future facing tools and support services is played in the market is a subject of perennial speculation. Other hardy annuals include whether Wiley do eventually decide to split their education from their journals holdings, whether Sage maintains its resolve to go not for profit, and whether Informa will respond to pressure elsewhere and put T&F into play. Add the clear departure of Clarivate on an IP trajectory, which some argue means that Web of Science could be available, and we see what a range of investment opportunities this market exhibits. So what are we waiting for?