Why consider acquiring another publishing company when you already own one? The main reason is faster growth. Another reason is reversing red ink back to black.
Four or five years ago at Chicago Review Press, we decided to grow our list, internally, from about 20 books a year to 50. This meant hiring a second acquisitions editor, a production manager, and some editorial help. Of course, it took almost 18 months for the first titles acquired by the new acquisitions editor to be shipped, another 12 months for these titles to pay back the costs of producing them, and then another year of so for these sales to fully absorb the new higher overhead. That added up to three years of red ink.
In contrast, the purchase of an existing publishing company can quickly give you more titles to sell and, if the acquisition is well conceived, can soon give you the cash flow you need to carry the cost of the money you borrowed to make the acquisition. Also, if you buy a company that has a reasonable amount of work in progress–new titles in the pipeline–you can ramp up your staff on a gradual, as-needed basis.
Two basic kinds of acquisitions are plain vanilla and strategic.
The Plain Vanilla Option
With plain vanilla, the aim is simply more sales and more cash flow. The analysis needed is not intellectually daunting–just a spreadsheet that projects five years or so of sales (based on past performance) of the acquired titles together with the costs of keeping the live ones in print and the production costs of titles in the pipeline. At the bottom of the spreadsheet there must be a place to deduct either the cost of the necessary loan, or the cost of money in general, from the profit. (You could, after all, buy T-bills instead of a publishing company, but you want a better return than T-bills can give you, especially considering the much greater risk.)
What should you look for in a plain vanilla acquisition? Almost certainly a company working in your niche or very close to it. When that is the case, your judgment as to the quality and saleability of its list will be sound. Paradoxically, you may want to be especially on the lookout for publishers who have done a poor job packaging their titles. If the content is solid, repackage such titles and reissue them with your own ISBNs with relatively little time or expense. Publishers who have done a poor packaging job are plentiful–and cheap.
The Strategic Buy
The strategic acquisition is another matter. Our company recently made what we hope will turn out to be one. The goal of the strategic acquisition is to add the acquired company strengths to your current publishing program to produce a new whole much greater than the sum of its parts.
Let me describe for you the steps that led us to what we hope will be that sort of acquisition.
We had been having good success with a line of activity books for kids. Some research on the computer revealed, to our surprise, that these books were selling very well in teacher stores and through teacher catalogs, as well as in trade bookstores. This perception began to have an effect on the titles we chose to publish–two markets instead of one–and we started to exhibit at some shows attended by teachers.
By talking to teachers, we found out why they liked our books. A title such as The Civil War for Kids provided an efficient way for them to prepare a lively class on that subject, as well as graphic materials they could copy and pass around to the kids; plus a book that could be added to the classroom library. In short, we discovered we were helping teachers do a better job, which had to mean we had found a sizable and enduring market to tap. There will always be teachers who want to do a better job. An acquisition that could give us better access to them seemed in order. But what sort of acquisition?
This is where we began to do what might be called strategic thinking. How, we asked ourselves, did this small discovery of a teacher market for our kids’ activity books relate to the current state of K-12 education in America? To the desperate educational funding problems of the states? To the new emphasis on performance testing in the schools? To the mainstreaming of gifted and/or difficult students? We came up with various theories about how our titles could benefit from these developments, even when they seemed very negative in the context of educational publishing in general.
Thinking of this kind cannot be laid down on a spreadsheet. The smart money will tell you that strategic thinking and $1.50 will get you a ride on the Chicago El. But good guesses are an essential part of running a successful independent publishing company. If you are not big, you must be quick. If you wait for an opportunity to become perfectly clear, it will be too late to seize it. Note, however, that the discovery of a specific market opportunity preceded our theorizing. I do not for a second believe in the viability of strategic plans based on theory alone.
The Intermediary Enters
It was at this point that a publishing company broker (Howard Fisher, a past president of PMA) brought us the possibility of acquiring Zephyr Press (founded by Joey Tanner, a past board member of PMA). Zephyr had published a strong line of professional books for K-12 teachers for 30 years and sold them primarily through a well-regarded mail order catalog sent to teachers.
This seemed too good an opportunity to pass up. Through its catalog, Zephyr could give us direct access to teachers for our own kids’ activity titles and for suitable titles from publishers distributed by Independent Publishers Group, our distribution arm. Also, Zephyr could bring us good professional titles for teachers.
But the most compelling reason for acquiring Zephyr was that we began to believe that our own kids’ activity titles combined with the Zephyr professional titles could address unmet teacher needs from different angles. All we would have to do was position these books, from a marketing point of view, in a way that made teachers realize that they really had such unmet needs, and a mail order catalog could give us a forum in which to make that case. (Please do not confuse positioning with “spin.” For this sort of thing to work, the needs have to be real and the books helpful.)
Perhaps the biggest downside to buying a publishing company is the enormous investment of time required. You have to do your homework to determine the value and potential of an acquisition–typically some weeks of studying financial statements (which I at least always need to translate into the pattern I am used to before they make any sense to me). And then there are the sales projections, the production and printing costs estimates, and the negotiations.
If you get close to having a deal, you must perform due diligence to make sure that the inventory actually exists as claimed, that the work in progress is what it is supposed to be, that there are no legal skeletons in the closet, and so on. There is a great need to be hard-headed in all of this, especially in the case of the strategic purchase. Dazzled by the beauty of your theories, you are all too likely to pay too much. And finally, you must be able to accept one especially disagreeable fact: Even after all the work, the odds on actually closing an acquisition deal are no better than 50/50.
This time, though, we bought the company. We will see how it works out and let you know.
While teaching American literature at Northwestern University 30 years ago, Curt Matthews published a book out of his garage (a slender volume of translated Japanese verse). Today he heads Chicago Review Press, which has more than 400 books in print and publishes 40 to 50 new titles each year. Seventeen years ago, the Press acquired Independent Publishers Group, which distributes books for more than 300 independent presses as well as for Chicago Review Press.