The owners of the Perseus Books Group have agreed to a sale of the company, in an unusual three-way transaction, with a formal announcement expected later today following final execution of the documents. Our understanding of the deal based on people familiar with the negotiations is that Hachette Book Group is purchasing PBG, and then in turn will sell to Ingram Content Group Perseus’s extensive distribution companies — including Perseus Distribution, PGW, the recently-formed Legato, and Consortium, plus the Constellation digital distribution platform and their share in the UK joint-venture Faber Factory Powered by Constellation. What HBG retains is Perseus’s own, almost entirely nonfiction publishing imprints, comprising Basic, Public Affairs, Running Press, Avalon Travel, Seal Press, academic textbook publisher Westview Press, the Weinstein Books joint-venture and a partnership with Nation Books — and our understanding is that Hachette intends to take on all of those publishing divisions intact, as well as all of the publishing locations from which those units operate. The deal is expected to close by July 31, pending in part any government review, though no obstacles are currently expected. Final execution of the deal and a formal announcement and confirmations of various details are likely later today. It was not known at press time whether the purchase price will be disclosed immediately or not.
UPDATE: The deal was officially announced at approximately 5:30. This story remains much more comprehensive than the press release confirming the deal, which primarily adds that the Perseus imprints will contribute about 6,000 titles to HBG’s list. The price was not disclosed, and no disclosure is expected for some time.
The acquisition directly implements the strategy that Hachette Livre ceo Arnaud Nourry presented to investors on May 28, when the deal was well on its way to completion: to “grow by acquisitions…with a focus on the USA,” building on the internal plan already underway “to expand its nonfiction presence” in particular. Nourry supervised the negotiations personally, and had been in New York for the finalization of the deal negotiations. The company had explained in May, “Hachette Livre will have to follow the industry consolidation” to keep up with industry trends, to gain scale, and to “maintain bargaining power in commercial negotiations with retailers” such as their current, very public standoff with Amazon.
The deal signals a resolve by Hachette to invest in itself, and invest in broadening its list and account base, over giving away margin to retailers. The timing of deal may raise a number of questions, particularly after having just laid off 28 people “as part of a cost-savings initiative” to “improve efficiency and balance” and instituted various “austerity measures” internally (but note our information in the opening graph about the Perseus publishing lines being preserved in full). It’s the latest step in the remaking of HBG over the past year or so under new ceo Michael Pietsch — with a number of other new top executives, plus the addition of the Hyperion adult list and the initiative to build the new Hachette Books division under Mauro DiPreta. One agent briefed by us right before posting this story remarked, “It’s good to see Hachette taking the longest possible view about constructing a long term future for itself and its authors. That future has to involve growing and diversifying their catalog as well as fighting ferociously to preserve a sustainable business model for itself with its retailers.”
Industry consultant (and our partner in Publishers Launch Conferences) Mike Shatzkin, also briefed by us right before sending this story, remarked, “It gets Hachette into the deep backlist and serious nonfiction business, which they made a little nod to when they acquired Hyperion, but this is a much more character-changing list addition and really requires that they start thinking beyond the bestsellers.” At the same time, on the distribution side, “It scales Ingram in a massive way” and is “a huge step increment in size that enables Ingram to scale a number of investments they’ve got.” They have also “eliminated the single-biggest standalone competition in the distribution game.”
Hachette is expected to run the Perseus imprints through another new, separate division though some portions of the list may be allocated to existing HBG divisions — such as using the pop culture-focused Da Capo to bolster the new Hachette Books list, or sending select titles to relevant parts of Grand Central. [Update: This has been denied; HBG has no plans to move any Perseus titles or divisions to existing Hachette divisions.] Perseus ceo David Steinberger, who has run the company since the beginning of 2004, is expected to depart after helping with the transition, as will the other two members of senior PBG management, chief marketing officer Rick Joyce and chief operating officer Charles Gallagher. Perseus Distribution Client Services president Sabrina McCarthy will continue to run that business for Ingram. [Note: The official press release confirms Steinberger’s departure after the close of the deal, with him consulting for Hachette “for a period.”]
In total, Perseus has approximately 650 employees in 8 offices in Berkeley (PGW), Boston (Da Capo), Boulder (Westview, and digital services), Chicago, London, Minneapolis (Consortium), New York, and Philadelphia (Running Press). Roughly 275 of those employees work at the publisher’s 640,000-square-foot warehouse in Jackson, TN. (According to a real estate site, Perseus has a little less than six years remaining on the lease for the warehouse, which is listed for sale for $13.4 million). While Ingram has additional facilities of its own, it is expected that they will retain the Jackson buildings and use them to consolidate other parts of their third-party logistics businesses that are currently run out of multiple locations (since space will become available there once the Perseus inventory is moved to HBG’s distribution center.)
The complex transaction has been under exploration and negotiation for over two months, but knowledge of the possible transaction had been limited to small, closely-held teams at the companies involved until earlier today — meaning that you can expect reaction and comment to filter in after everyone has had a chance to digest the details and hear more from the companies. And there have been a number of incorrect stories floating around the rumor mill today. (PL learned of the negotiations some time ago, confirmed by both sides. Consistent with our policies, we agreed not to report on the transaction — and potentially derail it — until it was clear a deal would in fact go through, and until papers are signed there remains the possibility of last-minute issues. We intended to wait for the formal announcement, though word started leaking earlier today, prior to the final execution of the papers.) Note: This is now moot; the deal was signed late Tuesday.
Perseus does not report revenues as a private company, but is said to have total gross revenues –including client sales — of $425 million or more. Knowledgeable estimates have the company taking in roughly $60 million to $70 million a year from their own publishing imprints (the parts HBG is buying), while earning slightly more than that from their physical and digital distribution businesses (on gross third-party publisher revenues in the vicinity of $375 million, yielding something on the order of $70 million before expenses to the distributor). Note: We are told more definitively that Perseus’s publishing revenues are $90 million to $100 million annually, following a series of record years.
For Hachette the deal provides them with both additional scale and list diversity, bringing them closer in size to the third-largest US trade publisher (HBG would have revenues of $740 million —the updated figure — before accounting for sales declines because of the Amazon standoff; Simon & Schuster has been at about $800 million). It gives the publisher the heft and depth in nonfiction that they have been missing in the past and it deepens the backlist sales for a company that has been very focused on frontlist and commercial titles. Plus it broadens their customer base (particularly through imprints such as Running Press and Westview) and puts them in entirely new business areas, such as Avalon Travel. HBG ought to be able to inject new sales energy and focus into the Perseus books lines and can conceivably further exploit rights through associated divisions from HBG Audio (Perseus never had its own audio division) to Hachette Livre publishers in the UK, France, Spain and beyond.
While much of the focus may be on the Hachette part of the deal, particularly since the company has been in the news so much lately, the sale also catapults the Ingram Publisher Services distribution division into a leadership role. In fact, according to knowledgeable estimates, PBG has earned more than half of its annual revenues from distribution rather than publishing. Ingram Content Group is a private company — just like Perseus — and is the smaller half of Ingram Industries, which Forbes estimated as having sales of $2.1 billion in 2013. (Back in 1999, when Barnes & Noble offered to buy Ingram Book Group before withdrawing its bid under pressure, Ingram was reported to have sales of over $1 billion.) No matter what Ingram Content Group’s current size, adding on the order of $375 million in gross publisher sales would be a significant acquisition.
Perseus distributes over 350 publishers in print and Constellation services a comparable number in digital, plus another 100 publishers serviced through their UK joint venture with Faber & Faber. The deal will transform Ingram Publisher Services, which currently has about 90 listed clients — mostly on the small side, (their larger client publishers include O’Reilly Media, Taunton Press, Taschen America and NorthSouth Books) — into the largest distributor in the country. It also vaults the publisher distribution business to a far more prominent place within Ingram Content Group, and will no doubt bring additional business for allied services such as Lightning Source. In that respect the deal is the most significant step yet in Ingram’s self-described “transformation…from a traditional wholesale service provider into a fully integrated and relevant solutions company for clients.”
Of course the key in acquiring distribution businesses is retaining clients, since most of publishers who will move to Ingram under the Perseus umbrella will be bound by short-term agreements of less than 3 years. As a general rule client publisher agreements are assignable (so the clients have no say over the transfer of their business in an outright sale), though at least some select publishers in the Perseus Distribution network — such as Grove/Atlantic — actually do have the right to opt out if they wish.
Perseus is thought to have been available for sale since its founding investor Frank Pearl died in May 2012, even though investment firms and publishers have told us that no formal solicitation of offers has been in that time period. The publisher’s owner Perseus LLC has been among parties suing Pearl’s estate for more than $50 million, and the investment company is reported to have enlisted multiple advisory firms while attempting to restructure some of their funds. But Perseus Book Group’s own complexity, from hundreds of distribution clients to multiple joint ventures and special publishing arrangements to the fundamental combination of a vast distribution business and a separate publishing business in one entity, may have made it difficult for potential acquirers. Having HBG and Ingram splitting the two main businesses between them solves that conundrum neatly. Careful observers may also recall that longtime Perseus chief operating officer Joe Mangan moved to HBG to take over as coo there in early February.