Swedish Royal Wedding
Wedding of Victoria, Crown Princess of Sweden, and Daniel Westling. Image by Holger Motzkau.

Nerd alert:  the “It” of the title of this post does not stand for “information technology.”

Sitting down recently for my quarterly catch-up with a Wall Street friend, I learned that 2015 would be the year of mergers and acquisitions. The economy is right for it, there is pent-up demand for deals from the dark days of the Great Recession, interest rates are low, and the shifting nature of the marketplace (a codeword for digital disruption) make some people run for the exits, even as others attempt to purchase a seat in the first row. “Everything is for sale,” he said.

Everything? One of the defining characteristics of scholarly publishing is the sheer number of not-for-profit organizations operating in it. IEEE, ACS, AAAS:  these are all large and influential enterprises, but unlike their brethren in the for-profit world, it’s difficult to imagine a scenario where they could be for sale. Add to these titans the hundreds of professional societies with modest memberships and publishing programs that consist of a single journal and you have a different kind of economy, one that lies just beyond the grasp of Wall Street’s dealmakers.

A different kind of economy, but an economy nonetheless, one that rewards people and organizations that intelligently pursue their own interests and migrates toward structures and practices that further their ends. What my Wall Street friend didn’t mention is that in the world of scholarly communications there is yet another factor driving combinations, the mandates for open access (OA) imposed by various funding agencies. This is a disruptor that you don’t have in, say, the steel business or in pharmaceuticals. I suppose that if all drugs were to lose patent protection six months after their release, the pharma world would be going through some of the same soul-searching and deal-making that scholarly publishers are today.

Surely when the large funding agencies first contemplated OA mandates they did not anticipate that these mandates would lead to even greater consolidation in the publishing industry, but no soul brimming with good intentions is immune to the Law of Unintended Consequences. Why the push for acquisitions? Because in uncertain times, many organizations opt for size as a way to combat unwelcome change. (This is analogous to the tendency for investors to flee to U.S. Treasury bonds whenever the economy is under sudden stress.) Small entities lose their confidence that they can operate alone; large companies strive to become even larger, the better to withstand challenges from the other large outfits. People seek to control their environment. A hopeless task? Maybe, maybe not, but one can be assured that seeking such control is going to be a prominent theme this year.

While commercial enterprises may call in the bankers and determine what to buy (or debate whether to sell), in the not-for-profit arena, where a sale is not an option, the proxy for a sale is a different kind of marriage, where a society places its publications in the hands of one of the larger publishers. I have written about this before and don’t want to repeat the argument beyond saying that the aggregator, the large publisher that takes on professional societies as clients, does very well financially by providing these services without having to come up with the cash for a full acquisition. Perhaps in 2015 some society publishers will begin to consider the option of an outright sale of their publications.

There may be more dramatic events in the offing, however. There is no reason to believe that industry consolidation has stopped or even slowed down. While the very big are always happy to eat the small, we should not be surprised to see the very big dance with one another. It is not so long ago that there were six very large college publishers. Now there are five. It is not so long ago that trade publishers talked about the “Big Six,” which is now, through a joint venture between Bertelsmann and Pearson, a Big Five (the JV is for Penguin Random House). A combination among the largest players in scholarly publishing would force every other player to rethink its strategy, and that rethinking is likely to include even more mergers and acquisitions–a phrase I once saw misprinted as “marriages and acquisitions.”

In this environment, where Wall Street plays as much of a role as library budgets and NIH funding, some not-for-profits may find themselves at a disadvantage. The problem is the asymmetry of information. A society publisher may negotiate an arrangement with a large publisher once in five years, or once in a lifetime. On the other side of the table are professionals who work on such a deal every week. The commercial publishers operate every day in the marketplace (over which they aim to exercise disproportionate influence) and are thus in a position to get better deals for themselves. For not-for-profit publishers seeking either a publishing services agreement or even an outright sale, should the year of mergers and acquisitions also be the year of the pre-nup?

 

Joseph Esposito

Joseph Esposito

Joe Esposito is a management consultant for the publishing and digital services industries. Joe focuses on organizational strategy and new business development. He is active in both the for-profit and not-for-profit areas.

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Discussion

8 Thoughts on "Birds Do It, Bees Do It"

Interesting Joe, but how do OA mandates work as a driver here? Is it the added expense (which can include IT) or perhaps just the threat of lost revenue? There may be an important policy issue here, especially for agencies considering new mandates. For example, the US Public Access program is still pretty fluid. Unintended consequences could be important.

University presses are generally immune from acquisitions. There have been a very few exceptions, such as when Iowa State sold its press to a commercial publisher, and there also have been a very few acquisitions of small commercial publishers by presses, such as when Ohio University Press took over Swallow Press.

How did Thomson buy BIOSIS? Where there’s a will there’s a legal team ready to rock and roll, especially if there are other assets like real estate as part of the mix. Look for the financial engineers and the Washington based law firms to lead the way.

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