In gathering comments for this story, we’ve talked with several astute observers in the UK’s publishing community who felt required to give us their opinions on background, which is to say without attribution. While Waterstones’ Russian owner since 2011, Alexander Mamut, hasn’t announced a sale per se, a state bailout of the Moscow bank Otkritie is likely to have impacted Mamut’s finances, and it’s been reported that the investment banker NM Rothschild has been brought in to work on possible changes of ownership. —Porter Anderson
By Roger Tagholm | @RogerTagholm
‘It Could Even Be Amazon’
Amazon and WHSmith are being floated in UK publishing circles as possible suitors for Waterstones, the sale of which—although still not officially announced—is widely believed to be an inevitability. Other observers say they believe such suggestions are wide of the mark and that the chain will go to a private equity buyer.
Most players we talked with seem to agree that that the chain is for sale, with agent Clare Alexander of Aitken Alexander Associates saying, “Nobody has denied it, which suggests this is not fake news.”
Other names mentioned in relation to a potential sale include the Japanese bookseller Kinokuniya, which operates internationally, and even Barnes and Noble—although of course, the latter has deep challenges of its own.
One observer says, “One of the big publishers might have a go—it’s just about conceivable, but so unlikely.”
An agent who prefers to speak anonymously to the issue, says, “It probably needs to be sold, or the debt around its neck will suffocate it. My worry is who will buy it and with what intentions. It’s hard to think who would.
“It’s not a good time to be trying to sell a UK High Street retailer in light of higher [business] rates, Brexit, and some tough leases. That worries me. It’s important that it’s bought by a good owner, but who? It could even be Amazon, which would be disastrous and one would hope for Competition Authority intervention in that case, although they sometimes look the other way.”
Another seasoned observer cites Amazon too, saying, “There are a couple of strategic buyers sniffing around I believe, but I don’t know who they are–probably Amazon, just to look at the numbers, but there’s surely no way they’d get past the Competition [and Markets Authority] people.”
Other observers say they believe a private equity buyer is more likely. Waterstones’ head office in London is on the sixth floor of its flagship store on Piccadilly Circus. Publishing staffers are frequent visitors, naturally, and sometimes take coffee in the elegant fifth floor café.
A senior marketing executive says, “You only have to watch the phalanxes of men in suits heading up to the offices above to know a deal is afoot. Publishers don’t dress like bankers, nor do they have the sleek air of moneyed prosperity—and booksellers most definitely do not. Make no mistake, Waterstones is being sold, and not to folk from Swindon [where WHSmith has its head office]. These are private equity barons, or people dressed up just like them.”
The Countervailing View
The respected retail analyst and consultant Nick Bubb with Zeus Capital says he has his doubts. “It’s probably not a private equity proposition,” he says, “given the lack of exit routes. And it’s probably too big for the likes of Foyles or Blackwell’s or indeed Daunt.” Waterstones chief James Daunt still owns the highly respected six–store Daunt Books chain and three related independents.
“And the French and German book chains might sniff about Brexit,” Bubb says. “But I do think WHSmith could get away with it with the Competition and Markets Authority, whereas Amazon could not.”
The UK’s competition authority exists to ensure healthy competition, with an inquiry usually called if a particular purchase or merger will give the company in question more than 30 percent of a particular market.
Bubb says, “The point is that private equity companies are in it to make money and after three years usually look to sell businesses on, either by way of an IPO or a trade sale. In the case of Waterstones, it’s hard to see what the exit would be, given the long-term problems—which is why the main appeal would be to a rival, who could get some synergies out of it.
“WHSmith have of course been playing around with upmarket bookshop formats in airports.”
And if WHSmith were to buy the company, it would be a case of retail déjà vu: WHSmith actually owned Waterstones from 1993 to 1998, and Tim Waterstone famously worked for the company in the 1970s, setting up a US operation until he was fired in 1981. He used some of his severance money to open his first Waterstones branch in 1982. In 1997, he put together a £1 billion (US$1.4 billion) bid to buy WHSmith, himself.
The Priority for Publishers: Retain Daunt
Among publishers, the retention of Daunt and his team is their prime concern.
Hachette UK CEO David Shelley says, “Waterstones is an enormously important retailer for us, and in its current incarnation under James Daunt is achieving exceptional results. We work extremely closely with the team there which contains some fantastic talent, and we would see it as vital, in the event of a sale, that this talent is retained and that whatever happens, and for the benefit of all—readers, authors and publishers—Waterstones would continue to flourish under new ownership.”
Juliet Mabey, publisher at One World says she has the same position. “We’ve watched Waterstones’ impressive turnaround with James Daunt’s steady hand on the rudder,” she says. “It’s a truly stellar achievement under difficult trading conditions. So I would personally be far less anxious about a prospective sale if I knew that James Daunt might continue at the helm.”
Simon & Schuster UK MD Ian Chapman says: “Our relationship with Waterstones is incredibly strong. We love working with them—as we do all our customers—and we’re great admirers of what James [Daunt] has done. He has turned the company around and we are delighted that he’s talking about opening new shops. If a sale does happen, I think it’s vital that James stays at the helm.”
Andrew Franklin, MD at Profile Books, describes Daunt as “one of the very few people in our industry who’s wholly indispensable.” And yet Franklin does point to one area in which the bookseller might arguably do better. “Waterstones online,” he says, “is not what it might be. Just imagine if it could compete effectively with Amazon. That would be a truly great thing.”
Apparently, many of the UK’s independent booksellers would like Daunt to stay in place, too, because he’s always said he won’t open in locations where there’s an existing independent.
Ron Johns at the Falmouth Bookseller in Cornwall says, “Knocking out competition is surely a thing of the past, when there was no Internet. It’s crazy to compete with other bricks and mortar. Trade is so thin nowadays that any bookseller contemplating competition against another should find somewhere else.”
How things play out this year should be fascinating to watch. Waterstones is vital to the UK book industry and change is unsettling.
And what says Daunt, himself? He says he believes it’s a logical time for the company’s Russian owner, Alexander Mamut, to sell, with the chain showing a much improved performance.
Daunt tells Publishing Perspectives, “Alexander Mamut has been extraordinarily patient with Waterstones, saving it from bankruptcy and then sustaining the business through the rise of Kindle. Waterstones is now a solidly profitable business, opening new shops and growing. He’s a wonderful owner.”