It was fascinating to watch the lead-up to last week’s efforts to debut Springer Nature on the stock market through an initial public offering (IPO). The prospectus was scrutinized not only by investors and competitors privately but also on Twitter by librarians and open access advocates (here are Bianca Kramer and Richard Menke) — and me. Here on The Kitchen, in a post positing that “Organizations with Subscriptions Are More Valuable,” Kent Anderson asserted “The ultimate share price for the Springer Nature IPO will help calibrate the value of subscriptions in our market, as well as the market’s opinion of the threat posed by APCs as non-recurring revenue trade-offs.” One commenter noted, “The Springer Nature IPO has been a long time coming and it will occur without any major problem.” And, on the morning of the planned IPO, Joe Esposito presciently asked, “Would you buy a stock if you thought it was going down?” Later that day, we learned that Springer Nature’s owners were withdrawing the IPO. What happened? What comes next?

The Judgment of Solomon by Nicolas Poussin.
Holtzbrinck’s Dilemma. Nicolas Poussin, The Judgment of Solomon.

It is clear that, for whatever reason, Springer Nature in its present configuration is viewed as less valuable by the market than it is by its current owners. This is why the offering was withdrawn. This helpful piece from Reuters reminds us, with an echo of Tolstoy, that “Like families, botched initial public offerings are all unhappy in their own way,” focusing in this case on debt and earnings figures.

In a smart analysis, David Worlock has emphasized that it is not so much a matter of “soft” European markets. Rather, he wonders if Springer Nature’s bankers marketed the offering without enough “allure” — positioning the offering as a publisher with its current business successes and challenges, rather than emphasizing the opportunity that it has to transform research and scholarship in the future.

I am left to wonder: Perhaps it is not just about marketing the offering but about the substance of the business.

Perhaps, whatever the strength of subscription businesses, the market rightly sees that model as tapped out for selling into academic libraries. Perhaps, as Michael Clarke has wondered on these pages, building on a term apparently earlier used by Jan Velterop, we have reached “peak subscription.” Perhaps, as Worlock writes, the market is coming to recognize that content is “getting commoditized and anyway you can get it free in Kazakhstan” and even more tellingly “that OA dilutes Ebitda” [Earnings before taxes, interest, depreciation and amortization].

In the wake of the failed offering, Timo Hannay tweeted that Springer Nature is a “great name laid low,” but from the offering prospectus, we can see that it is hardly “the sick man of scholarly publishing” — it has a perfectly profitable publishing business. Indeed, if anything, it is somewhat ahead of others in its efforts to pivot towards APC-driven open access. This business can reasonably be expected to continue to produce profits for the foreseeable future. Even so, investors might understandably ask whether scholarly publishers expect to be unique among information intermediaries as the only ones never to face a fundamental disruption to their role.

Perhaps the future is, and indeed much of the value will be, not about publishing as we have known it but about research workflow services. Through its new Dimensions product, for example, Digital Science is positioning itself to transform the nature of content distribution and access, one of several major areas where it is fostering entirely new businesses. While its revenue may still be relatively modest and from a profitability perspective is almost certainly loss-making, it is driving transformation in the research workflow.

Readers may recall that I asked if Digital Science would end up a part of Springer Nature, since they are half-siblings, both under Holtzbrinck control. My questions provoked vociferous denials from Digital Science, which indeed was not part of the withdrawn Springer Nature public offering. It is entirely possible that Holtzbrinck believes that Digital Science is more valuable on its own, or in combination with similar businesses, rather than bridled to a publisher like Springer Nature.

As a result, without Digital Science, perhaps Springer Nature reads to the market as one of the publishers at risk of being “left behind.” After all, RELX’s scholarly communications businesses include both a traditional publisher, albeit one that positions itself as increasingly focused on analytics, and a portfolio of entirely new research workflow services. And Clarivate is building a somewhat similar portfolio of workflow services as well, independent of a publisher. Academia may have a real opportunity to get into this game itself rather than through commercial providers. Perhaps Springer Nature’s future potential is far reduced without those equivalent new services of Digital Science. What a fascinating dilemma for Holtzbrinck in the wake of this “botched” IPO.

Roger C. Schonfeld

Roger C. Schonfeld

Roger C. Schonfeld is director of Ithaka S+R’s Library and Scholarly Communication program. He leads a team of methodological experts and analysts that provides strategic consulting, surveys, and other research projects, for academic libraries, scholarly publishers and intermediaries, museums, and learned societies. Previously, Roger was a research associate at The Andrew W. Mellon Foundation.

View All Posts by Roger C. Schonfeld

Discussion

12 Thoughts on "Why Was Springer Nature’s IPO Withdrawn?"

I think this will represent an inflection point in business strategy. Investors have decided that APC-driven OA isn’t as viable as subscriptions, and given SN’s big bets on non-recurring revenues like those, didn’t want to put their money there. Strategists everywhere took note, I’d bet. That may mean rather than being at “peak subscription,” we’re witnessing a market crossing past “peak APC.”

You’re so right, Ken. It is indeed the most prominent duty of publishers to fulfill the expectations of investors, thank you for pointing that out so clear. Every library should know that they are not doing what their customers want and every researcher should know that they are not doing what those want that make everything possible by delivering their articles for free and peer reviewing them as well for free.

I’m not so sure. To me, this is a reminder that Wall Street favors growth over profits. In recent years we’ve seen enormous valuations of companies like Amazon, despite a lack of profits, because of their growth potential, while hugely profitable companies like Apple have been undervalued, because who knows if they have any plans past the iPhone. Here, journal publishing, whether subscription or APC is a mature market. Any growth is likely incremental at best, other than gobbling up competitors to gain a bigger share of the existing market. The clear potential growth areas for Springer Nature, as Roger points out in this post, were excluded from the offering. Hence a lack of sexiness for investors.

I think David has it right— investors and markets look for growth as primary measure of financial health, not margin or profit. The cautionary language in the proposed SN IPO was hardly unusual– RELX for example has similar warnings re concerns re IP piracy, subscription budgets (perhaps the “peak subscription” issue noted), etc. Also agree that analytics businesses seem to have much higher growth potential than more traditional publishing businesses (of whatever model), and that SN without DS or with only a modest portion of DS is less attractive than other more diverse businesses (including RELX, which has one whole division almost exclusively devoted to analytics in the risk/business area).

If any reasonable investor read carefully the Risk Analysis of the Springer prospectus, she would hesitate. All Risk Analyses are, by definition, cautionary, but if this one is parsed carefully, it reads like a list of the successes on the Open Access Initiative. Bravo to all who have stayed the course!

Interesting no one has mentioned the most creative company in the mix, namely, Elsevier.

It seems to me that an IPO is based on the future not that which is.

As was so lucidly pointed out in the musical Gypsy: If you’re gonna bump it! Bump it with a trumpet!

SN was actually not profitable due to $400m in annual debt payments. With slow growth (<1%), and only $1b of the IPO allocated to pay down the debt (leaving ~$250M/y), the business would not be well-positioned to generate consistent cashflow in the near term to do what their peers are doing, i.e. issue dividends, pay for stock buy backs, or make strategic investments that could accelerate growth. In light of that, investors who cover this industry basically questioned why they would pay this much for SN when they could invest instead in RELX or Wiley or other publishers who have those fundamentals.

There is one mystery around the reporting of the SN IPO, and that is that Reuters reported on Friday May 4th that the IPO was “oversubscribed”:
https://www.reuters.com/article/us-springer-nature-ipo/springer-natures-ipo-books-oversubscribed-bookrunner-idUSKBN1I521U

The source for this information was cited as Morgan Stanley. The IPO was then cancelled on Tuesday, May 8. So either the Reuters reporting of May 4 was in error, Morgan Stanley was not reporting the right numbers (highly unlikely), or there was still price movement as late as Monday May 7. Presumably those placing orders prior to the 4th had already read the prospectus and ordered anyway so the risks outlined therein did not seem to be cause for concern among investors.

I don’t know how the process worked in this IPO, but there was a c40% differential across the indicative price range I saw (Euro 10.50 – 14.50???).

My guess is that the book was oversubscribed but full of bids at the lower end of the price range, which might be where it represented fair value versus sector peers.

It is always fun to second guess what happened with the Springer IPO. Everyone has their favorite story or view. Having been on those calls with various investors when they are trying to determine the risk and potential of the offering, I never hear much about OA or any references to the changing scholarship issues. Investors for the most part are looking for the standard components of any IPO. The community I work with is looking for growth, certainly a significant upside potential, good margins and little overall risk.
Unfortunately for Springer, their previous owners from 2003-2009, raped and pillaged them and stripped out nearly every asset. Cinven and Candover also wanted to do an IPO but the market conditions were not favorable so they stripped Springer bare and loaded the company with debt and sold Springer off to the next venture firm. That long term debt has been a millstone around the company ever since. The latest IPO was a chance to retire that debt.
This IPO was not botched in my opinion. This was a play by BC Partners and Holtzbrinck Publishing group to reduce the debt and see a real return on their investment. But there is only so much lipstick and makeup that can be applied to the balance sheet. You also have to have an exciting story about the future. Investors did not like what they saw, but were willing to buy at the low end of the offering. BC Partners with Holtbrinck decided not to sell at that low price. If anything was botched it was the sales and marketing job of the lead underwriter.
Doing an IPO for an established company with very little growth potential is always difficult. Add the changing nature of scholarly publishing and you double the selling difficulty.

Reading all this, in my opinion Dan Tonkery provided the best explanation. Indeed, the old Springer had a phantastic story: SpringerLink and for that reason Bertelsmann was so much interested. After the sale to Cinven and Candover the company was stripped bare and many insiders feared for the future. Such a sad story. What a relief when Holtzbrinck decided to invest, at the same time creating a marriage between Springer and Nature. Nature apparently did not really increase the value of the new company. With a continued strong research output, there could have been a really good story for investors.
Arnoud de Kemp
(Springer 1984-2003)

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