KKR/Simon & Schuster: buyout group can build book value affordably

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The business of book publishing is rarely a thriller. But the sale of Simon & Schuster has become a page turner. More than nine months after US regulators blocked its sale to Penguin Random House, the publishing house behind blockbuster authors such as Colleen Hoover and Stephen King is the subject of new dealmaking.

Private equity group KKR is in advanced talks to acquire Simon & Schuster from media group Paramount for more than $1.6bn. Other bidders include Rupert Murdoch’s HarperCollins. But a bid from KKR would sidestep regulatory concerns that a trade sale could lead to monopsony and suppress author pay.

KKR for its part would be getting a prized asset. A price of $1.6bn would be lower than the $2.2bn that Bertelsmann — which owns Penguin Random House — agreed back in 2020.

Simon & Schuster is an attractive prospect thanks to its strong catalogue of titles. It is one of the top five publishers in the US and has outperformed rivals even as book sales slipped following two strong years. Unit sales of print books fell 6 per cent last year compared with 2021, according to NPD Book Scan.

Yet Simon & Schuster managed to more than double its net earnings to $356mn in 2022 as revenues jumped nearly a fifth to $1.2bn. The winning streak has continued in 2023, with first quarter revenue up 19 per cent. 

A winning bid at $1.6bn would value Simon & Schuster at 1.3 times sales, or 6.5 times operating income. In 2019, Bertelsmann acquired the remaining 25 per cent of Penguin Random House it did not own for $675mn, giving it an implied valuation of about 4 times ebitda. Penguin Random house had revenue of about €3.6bn and ebitda of €561mn in 2019. 

Scholastic, one of the few remaining publicly traded publisher, trades on about 10.5 times ebitda. 

As with any other gripping yarn, dramatic plot twists should not be ruled out. Authors including Stephen King cheered the demise of a deal with Penguin Random House. But KKR has a reputation as an aggressive cost cutter. That could end up spawning a whole new horror story.