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KKR’s early hardships were chronicled in a bestseller, barbarians at the gate, It details the company’s $30 billion acquisition of RJR Nabisco and the smashing strategy that earned it the nickname “Wrecking Ball on Wall Street.”
Now Savage is considering entering the book business. Prominent book publisher Simon & Schuster is back on the market after US regulators blocked a previously agreed merger with rival Penguin Random House, arguing it would cause “significant harm” to authors. “.
A new auction is heating up, with KKR among Simon & Schuster’s bidders. Simon & Schuster is a 99-year-old publisher and home to bestselling authors including Colleen Hoover and Stephen King.
There were five bidders, including KKR, Rupert Murdoch-controlled HarperCollins and Richard Hughes, an investor backed by Abu Dhabi’s sovereign wealth fund, the people said. Richard Hurowitz. There is also a large private equity fund, one of the people said. The price tag is close to $2 billion. By comparison, failed public housing deals in 2020 were valued at $2.2 billion, but the wider financial backdrop is already quite bleak.
A second round of bidding is due in mid-July, and S&S owner Paramount hopes to seal a deal by late summer. Even after all the regulatory headaches and week-long legal trial last year, Paramount hasn’t wavered in its desire to get rid of S&S.
S&S is a well-run business, but Paramount is waging an expensive “streaming war” with Netflix and HBO. As Paramount CEO Bob Bakish puts it: S&S was the creation of F Scott Fitzgerald and Edith Wharton publisher, “Not based on video” Therefore no need.
This time around, Paramount will pay close attention to regulatory risks as it chooses whom to sell, according to people involved in the process. The Department of Justice considers the proposed merger of PRH and S&S to be anticompetitive, reducing the industry’s five largest publishers to four. Therefore, financial buyers will have an advantage in the new auction. Are such acquirers worse than large publishers? Some in the industry think so too.
“It’s definitely worse,” said a senior executive at a major publisher. “KKR will use it for cash instead of reinvesting in the business, and in five to 10 years the rest of us, people like me, will be buying parts of the body.”
Douglas Preston, best-selling author and former president of the Authors Guild, said financial conglomerates “don’t know anything about publishing”. “One thing they may not understand is that return on equity in book publishing has historically been low,” he noted.
However, Morgan Entrekin, president of independent publisher Grove Atlantic, said he might prefer to keep Simon & Schuster independent from one of the other big four publishers. “It increases the diversity of the industry, with more important players,” he said.
Publishing isn’t a growth industry, but it does deliver solid profits. Last year, S&S’s operating income rose 16 percent to $248 million, while revenue rose 10 percent to more than $1.1 billion, which CEO Jonathan Karp called “A remarkable, stratospheric yearThat’s thanks in part to the massive success of Hoover, whose novels have amassed a huge following on TikTok.
Traditional media companies are typically valued at five to ten times EBITDA. Paramount does not disclose S&S earnings before interest, taxes, depreciation and amortization (EBITDA). But at $2 billion, S&S would be valued at more than eight times last year’s operating income. This is not a successful investment case.
Private equity firms’ strategies have evolved from the Nabisco days, when buyout groups were synonymous with divestitures. Defenders of KKR point to their successful investments in media companies such as BMG and Epic Games. They mentioned that Richard Sarnoff, head of KKR’s media division, was a former executive at Random House. For many creative minds in publishing, this is cold comfort.
“What they care about is making more money. What kind of risk are they going to take for an interesting book? It’s not just numbers and predictions. It’s not just ‘oh, everyone likes golf, let’s publish something about golf.'” books’,” said Gail Hochman, a veteran literary agent in New York. “It’s this creative instinct. It’s the publishing business.”
anna.nicolaou@ft.com