This presentation was delivered by Joe Esposito and David Lamb of STM Advisors during a NISO webinar, entitled Understanding the Marketplace, Part I: Consolidation, The Long Term Impact and the New Players, held on March 8, 2017

1. Publishers, Libraries,
and the Food Chain
A Webinar for NISO
Joseph J. Esposito and David Lamb
STM Advisers LLC
March 8, 2017

2. Topics
● What is industry consolidation and why does it happen?
● Different kinds of buyers (financial and strategic)
● Private equity investors and venture capitalists: two
types of financial investor
● How does private equity work?
● Why are so many deals happening at this time?
● Who are the strategic acquirers?
● An example of consolidation
● The interesting precedents of ResearchGate and Meta
● What to look for in the coming years
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3. What is Industry Consolidation?
● Consolidation refers to the merger of companies in the
same industry, leaving fewer but bigger companies
● A sign of a mature industry
● Key driver: the benefits of scale
● Large market share stabilizes pricing and locks in profits
● Rarely does consolidation yield significant innovation
● Example: merger of Springer and Nature
● Look for more consolidation ahead
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4. Categories of Buyers
● Strategic buyers
○ Established company operating in same market
○ Interested in extending range, increasing market share
○ Finance acquisitions out of earnings, but may borrow money
■ Easily financeable because of size, assets
■ Interest is tax-deductible, which encourages acquisitions and borrowing
○ Acquisitions can be highly competitive
● Financial buyers
○ Investment firm that takes in money from investors
■ Your institution is likely invested in both private equity and venture capital
○ Don’t always have deep interest in the markets they invest in
○ Look to resell properties at profit after period of time
○ Tend to be highly cost-conscious; rarely encourage big investments by
management
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5. Private Equity vs. Venture Capital
PRIVATE EQUITY (PE)
● Works with larger companies
● Requires cash flow
● Likes mature industries
● Focus is on generating cash
● In tandem with revenue
growth increases company
value
● Companies in this space
funded by PE
○ Innovative Interfaces
○ Baker & Taylor
○ OverDrive
○ Ex Libris (ProQuest)
○ Springer Nature
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VENTURE CAPITAL (VC)
● Works with start-ups
● Rarely involves debt
● Focus is on innovative
products and services
● Investees rarely possess scale
or have strong market position
● Successful start-ups sell out
to larger entities
○ Mendeley
○ PubGet
○ Aer.io
○ *Meta

6. How Does Private Equity Work?
● Typically identifies “platform” company to serve as base
for other acquisitions
○ ‘Bolt-ons’
● Seeks to create large entity in specific market
● Uses some of its own capital, but borrows most of the
money for the purchase
○ Hence term: “leveraged buyout”
○ Ratio of capital to debt varies with interest rates
■ Aim is to use as little capital as possible
■ Return generated by paying down debt as well as increase in company value
○ Strong focus on improving cash flow (as distinct from revenue)
● Strong focus on cutting costs
● Always seeks to resell enlarged company later
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7. Why So Many Deals Now?
● Mature industry invites consolidation
● Perception (right or wrong) that scholarly
communications is ripe for change
● Advantages of scale very apparent (e.g., Big Deal)
● Deals being used to lock up markets, create barriers for
competition
○ ProQuest seeks to be library infrastructure provider (acquires ILS)
○ Follett seeks dominance of distribution channel (acquires Baker & Taylor)
○ EBSCO seeks to be library gatekeeper (acquires YBP)
● Investment environment
○ Low interest rates
○ A great deal of capital looking for a place to go to work
○ Highly efficient global network of investors
○ Low return from other investment categories
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8. Who are the Strategic Acquirers?
● All large commercial companies use acquisitions as part
of their strategy
● Usual suspects: Elsevier, Springer, Wiley, Taylor &
Francis, SAGE, ProQuest, EBSCO, etc.
● Acquisitions large and small
● Important that acquisitions are always strategically
appropriate
○ Elsevier would not acquire a trade publisher
○ HighWire would not acquire a college textbook publisher
● Likely that acquisitions will proceed apace in coming
years
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9. Example: ProQuest Acquisitions
● 2011 - ebrary
● 2013 - Ebook Library (EBL)
● 2013 - Coutts, MyiLibrary, OASIS
● 2015 - Ex Libris (from Golden Gate Capital)
● 2016 - Alexander Street Press
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10. Meta and ResearchGate
● Harbinger of a new paradigm
● Meta acquired by CZI: Facebook money applied in the
public interest (such is the claim)
○ First time major Silicon Valley entity has waded into scholarly communications
○ The aim of making this a free service alters perceptions of investments
● ResearchGate just announced huge financing ($53 Mn)
○ Among investors: Bill Gates, Wellcome Trust, Goldman Sachs
○ Once again, big capital deployed in market that never attracted it before
○ Implications of public interest despite commercial status
● These sources of capital dwarf the industry giants (e.g.,
Elsevier, Wiley)
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11. What to Watch For Next
● Ongoing consolidation
● Increasing pricing strength on part of largest companies
● No detectable antitrust objections
● Many, many new start-ups
○ Largely technology-based
○ Providing highly specific services
● Strong possibility of ongoing interest from Silicon Valley
○ New strategic objectives
○ Blurring of line between public interest and commerce
○ Potential to rattle the largest traditional players, who cannot operate on the
scale of a Google or Amazon
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12. Contact Information
● Joseph J. Esposito
○ Partner, STM Advisers LLC
○ espositoj@gmail.com
○ @josephjesposito
○ http://scholarlykitchen.sspnet.org
● David Lamb
○ Partner, STM Advisers LLC
○ @lamb
○ lambdcL@gmail.com
○ STMadvisers.com
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