John Styring, CEO, IglooBooks
In light of the Random House – Penguin merger consolidation has become something of a buzzword within the publishing industry. Likely to be the first of many, the deal is part of a trend for consolidation as a means of growth that will likely become more prevalent within the industry. It’s a fabulous means of strengthening market share and profitability, and accumulating new resource.
Should Leaner Publishers Get a Slice of the Action?
It is true that acquisitions do carry a high rate of failure, and that expenditure can be extensive without guaranteed return. It’s my firm belief though, that smaller publishers should not be afraid of being bold and aggressive and getting stuck in. In fact consolidation and acquisition on a smaller scale is probably of greater value, because smaller outfits can retain a level of versatility and responsiveness that is an asset in our ever-altering industry. Acquisitions help independent publishers grow, work more closely with affiliates, find new connections, and stand up to the biggest publishers. From my own experience (IglooBooks has recently acquired the small French publisher Elcy Editions) it’s a great thing to do, tricky, but great.
There’s One Golden Rule – Speed to Market
Publishing start-ups generally evolve and grow naturally. Many publishers can drive the growth they want to see. These years of building contacts, expanding routes to market, learning your craft and gaining in experience as both a publisher and business owner are crucial. Some publishers choose to continue their growth in this way, growing organically through high quality production values and tenacious sales.
However, there does come a time when acquisitions become a financially viable option. If you are open to the possibility of acquiring another business, you might find that opportunities begin to present themselves once you have an eye open to them. In my opinion though, if you are keen to expand your business through an acquisition, then you should drive that transaction. Think strategically about what a new business would add to your current set up. A purchase is not viable unless your speed to market is improved substantially in some way: the acquisition could open your market in new territories, or give you access to a new range of customers; it could radically improve your distribution network. If publishers can accurately identify a clear objective to be met, the chances of uncovering a successful acquisition prospect are much greater.
Make it your goal to fully understand the company you have an interest in, and become familiar with their products and services. Throughout the acquisition process, familiarity is the publisher’s greatest tool for success. Be transparent and understanding in your approach, but most of all be straightforward — make it clear you are happy to talk and interested in purchasing.
Gently Does It
The process of an acquisition — from opening discussions, through negotiations to practicalities — is a very sensitive business. Only one in four acquisitions come to fruition — in no small part directly related to the fact that so much is dependent upon good working relationships. Moreover, for an acquisition to work there is by definition an element of getting into bed with the competition. The only way to manage this relationship successfully is to be as supportive and sensitive to your opposite number as possible. There is every likelihood that you will have worked together before the acquisition process, and it’s really important to draw upon this professional relationship and deepen it as far as you possibly can.
Here at IglooBooks, our acquisition of Elcy Editions came after the death of the CEO, a dear personal friend of mine. This perhaps invested our venture with an even greater destabilizing element than a traditional acquisition. The business principle remains the same though — we had to work hard to communicate the transition effectively and considerately to staff. It’s my belief that to alleviate any concern, buyers should explain those key issues that staff will want answering: management structure/suppliers and job security. These issues should be decided prior to a deal being announced.
Due Diligence is Your Greatest Ally
Due diligence has a bit of a bad reputation — it takes time, man power, and cash. However, it remains truly essential to take the time required to do it properly. Due diligence is your opportunity to mitigate risk as far as is possible.
Nobody would buy a house without having a survey completed. And if that survey revealed a structural problem that meant you ended up not buying a death-trap, you’d consider yourself to have had a lucky escape. Due diligence MUST be viewed in the same light – the cost is necessary to forgo a potentially unwise investment. Don’t be afraid to spend in order to ensure a thorough service, one way or the other, in the long run the expenditure will always be profitable.
With a venture of this nature, there will also be a curve ball or two. It’s par for the course. Publishers must go in with their eyes open: bringing together two companies will take time to settle, and there is always a risk of failure.
This isn’t something to be afraid of — it’s something to spur you on. One pitfall that publishers can prepare for is the effect of power structures and working habits of individual companies. Individual personalities can have a huge effect on how companies perform and work. The more aware you can be of this, the easier your job will be in identifying possible risk. Personalities, combined with unique laws and business customs, can have a massive impact on the success of negotiations, and you should be as clued up about these idiosyncrasies as possible.
Trust in your team and their knowledge too: ensure you have a team member working as closely on the project as you, utilize their expertise and experience. It’s also really important to have shared in-depth knowledge, so you can sense check for documents and strategy properly and for the provision of a priceless second opinion.
No Work is Wasted
Publishers can plan acquisitions — to the extent that they can look at the competition, assess the strength of markets they might be keen to move into, and research into companies that look like potential purchases.
Research of this nature is never wasted, even failure helps you grow, especially where business ventures of this kind are concerned — it’s always good to have an eye on competitors and a feel for where the industry is heading. IglooBooks acquired a small packaging company (Brown Wells and Jacob) a while ago — it wasn’t a standout success by any means, but it was a hugely important learning curve to get us to where we are now with Elcy. Everything is research, everything is useful.
Acquisitions are tricky — but they are a fantastic way of expanding one’s business. In fact I’m reliably informed that the process is just like childbirth: painful, and takes longer than you think. It is scary and it can go wrong — but it is so worth it in the end.
Further reading on Publishing Perspectives: John Styring’s “5 Tips for Publishers Pursuing Licensing Deals”