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The world of book publishing is typically unexciting. However, the sale of Simon & Schuster has turned into a captivating story. Despite the U.S. regulators preventing its sale to Penguin Random House nine months ago, there are now new negotiations for the publisher behind popular authors like Colleen Hoover and Stephen King.
Private equity firm KKR is currently in advanced discussions to acquire Simon & Schuster from Paramount media group for over $1.6 billion. Other interested parties include Rupert Murdoch’s HarperCollins. However, if KKR obtains the bid, it would bypass regulatory worries regarding a trade sale potentially leading to a monopoly and lowering author compensation.
For KKR, acquiring Simon & Schuster would mean gaining a valuable asset. The price tag of $1.6 billion is less than the $2.2 billion agreed upon by Bertelsmann, the parent company of Penguin Random House, in 2020.
Simon & Schuster is an appealing prospect due to its substantial catalog of titles. It ranks among the top five publishers in the U.S. and has outperformed competitors, even in the face of declining book sales after two successful years. According to NPD Book Scan, print book unit sales dropped 6% in comparison to 2021.
Nevertheless, Simon & Schuster managed to more than double its net earnings to $356 million in 2022, with a nearly 19% increase in revenue to $1.2 billion. The success continued into 2023, with first-quarter revenue up by 19%.
A potential winning bid of $1.6 billion would value Simon & Schuster at 1.3 times its sales or 6.5 times its operating income. In 2019, Bertelsmann acquired the remaining 25% of Penguin Random House for $675 million, implying a valuation of about 4 times EBITDA. Penguin Random House reported revenue of about €3.6 billion and EBITDA of €561 million in 2019.
Scholastic, one of the few remaining publicly traded publishers, trades at around 10.5 times EBITDA.
Like any gripping narrative, unexpected plot twists should not be ruled out. Authors like Stephen King celebrated the collapse of the deal with Penguin Random House. However, KKR is known for its aggressive cost-cutting measures, potentially setting the stage for a new horror story.
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