Book Publishing Company Acquisitions
July 8, 2008
Acquiring another book publishing company is the fastest way to grow your own company. The acquirer will purchase the company and eliminate duplicate staff positions. This transforms a break-even or mildly profitable publishing operation into a highly profit venture.
Example:
Pre-acquisition company A has sales of $3M, a net profit of $200K, including payroll expense of $1M a year. A 6.7% profit margin.
The acquiring company takes over order processing, marketing, operations and finance. Leaving only the editorial staff untouched and reducing payroll expenses by $600,000.
Post acquistion the company has has sales of $3M, a net profit of $800,000K, a 26% profit margin and more than enough to pay the interest on the bank loan that financed the acquisition.
Of course, the economics only hold up if the acquirer can absorb these overhead functions without substantially increasing the size of their own staff.
In one real-life case the acquirer; a $3M book publisher acquired another $3M book & journals publisher.
First, they absorbed the order fulfillment functions of the acquired company without increasing their staff by implementing an EDI system. The EDI system allowed the publish to automate the processing of orders from their major business partners; Ingram, Baker & Taylor and Barnes & Nobles to send them orders electronically.
Then they consolidated the operations by eliminating duplicated CFO and accountant positions, the marketing department, the production department and the publisher position.
Salary related expense reductions totaled about one million dollars and the acquiring book publisher was able to pay-off the loan that financed the acquistion within four years while continuing to grow the acquired company.
