Clarivate Report Proquest Financials: Raise $1Billion in Equity

On May 17, Clarivate announce a proposed deal to acquire Ann Arbor based Proquest.  (See here).  In the last few days, Clarivate has reported more details including 2020 full year financials for Proquest.

Here is a summary:

• Assets of $1.3B with $629mm in goodwill
• $1B in long term debt
  
• Revenues of $862mm
• Operating Income of $84mm
• Net Income of $3.4mm (Includes unrealized loss of $31mm)
• Cash provided by operations $199mm
• Net cash expended on acquisitions of $225mm
• During 2020, the Company distributed $168.3mm to ProQuest Holdings, primarily related to distributions to shareholders
  

Management fees of $7mm were fairly modest.

More to be found here.

In addition, Clarivate also reported details on a $1B equity raise which some portion of which will go to fund the acquisition of Proquest.

MediaWeek (Vo 14, No 3) Clarivate to buy Proquest in $5.3B deal, Remember Reading, RB Media Acquires, Controversial Book Deals

Clarivate (ex Thomson Reuters company) announced their intention to acquire Proquest.  From the press release:

Clarivate plc (NYSE: CLVT), a global leader in providing trusted information and insights to accelerate the pace of innovation, today announced a definitive agreement to acquire ProQuest,  a leading global software, data and analytics provider to academic, research and national institutions, from Cambridge Information Group, a family-owned investment firm, and other partners including Atairos, for $5.3 billion, including refinancing of ProQuest debt. The consideration for the acquisition is approximately $4.0 billion in cash and $1.3 billion of equity. The transaction, which is subject to customary closing conditions, including regulatory approvals, is expected to close during the third quarter of 2021.

With a mission to accelerate and improve education, research and innovation, ProQuest delivers content and technology solutions to over 25,000 academic, corporate and research organizations in more than 150 countries. The acquisition will establish Clarivate as a premier provider of end-to-end research intelligence solutions and significantly expand its content and data offerings as the addition of ProQuest will materially complement the Clarivate Research Intelligence Cloud™. 

Why We Remember More By Reading (The Conversation)

The benefits of print particularly shine through when experimenters move from posing simple tasks – like identifying the main idea in a reading passage – to ones that require mental abstraction – such as drawing inferences from a text. Print reading also improves the likelihood of recalling details – like “What was the color of the actor’s hair?” – and remembering where in a story events occurred – “Did the accident happen before or after the political coup?”

Studies show that both grade school students and college students assume they’ll get higher scores on a comprehension test if they have done the reading digitally. And yet, they actually score higher when they have read the material in print before being tested.

Educators need to be aware that the method used for standardized testing can affect results. Studies of Norwegian tenth graders and U.S. third through eighth graders report higher scores when standardized tests were administered using paper. In the U.S. study, the negative effects of digital testing were strongest among students with low reading achievement scores, English language learners and special education students.

 New Order: Audio First (WSJ - Paid)

“The Bomber Mafia” is part of an effort by Pushkin Industries Inc., an audio company that Mr. Gladwell co-founded, to become a major provider of highly produced “original” audiobooks. Such projects sound more like podcasts than traditional audiobooks, since they often feature original scores, as well as archival and interview tape.

Industry giants including Bertelsmann SE’s Penguin Random House and Amazon.com Inc.’s Audible also produce high-production original audiobooks with sound effects and a cast of multiple actors, representing significant competition for Pushkin.

RBmedia Acquires McGraw Hill Professional Audiobook Publishing Business

RBmedia, the largest audiobook producer in the world, today announced the acquisition of McGraw Hill Professional’s audiobook publishing business, which includes its catalog of previously published titles, as well as a multi-year agreement to become the exclusive audio publisher for all of McGraw Hill Professional’s new titles.

“We are excited to participate more fully in the rapidly expanding audiobook category by partnering with RBmedia,” said Scott Grillo, President of McGraw Hill Professional. “Leveraging RBmedia’s unique abilities in spoken audio will help us reach business and trade professionals and all those striving to advance their education or careers. RBmedia creates exceptional audio productions that serve our authors well and will help them monetize audio rights at a high level. Our publishing program will be stronger because of this unique collaboration.”

Note: Overdrive purchased RB Digital the company's library platform in 2020 (Press Release) 

Who Deserves a Book Deal - Just about Anyone? (Vox)

Is the industry’s purpose to make the widest array of viewpoints available to the largest audience possible? Is it to curate only the most truthful, accurate, and high-quality books to the public? Or is it to sell as many books as possible, and to try to stay out of the spotlight while doing so? Should a publisher ever care about any part of an author’s life besides their ability to write a book?

These questions are becoming more and more urgent within the private realms of publishing, amid debates over which authors deserve the enormous platform and resources that publishers can offer — and when it’s acceptable for publishers to decide to take those resources away.

Within the media watering hole of Twitter, it can look as though these concerns are being imposed from the outside: by progressive authors calling on their publishers to abstain from signing right-wing writers; by angry YA fans and Goodreads readers; by petitions and boycotts and special interest groups. But the conversation about who deserves a publishing deal is also happening within the glass-and-steel walls of the industry itself.

Employed but Pissed at Simon & Schuster (The New Republic)

Inside Merger Mania: (The Wrap - Register)

On the tail of massive acquisitions in the entertainment and media space, such as AT&T’s $85 billion purchase of Time Warner in 2018, thew 2019 re-merger of ViacomCBS and Disney’s $71 billion acquisition of 21st Century Fox in 2019, major book publishers are embarking on their own consolidations in an effort to cement their place in an increasingly competitive environment. But are any of these major acquisitions anti-competitive, as critics have argued?

*******

Are you considering an investment in new technology?  Check out my report on software and services providers.  (PubTech Report)

PND: Digital Transformation: A Seminar for Management

PND: Blockchain for Publishers

PND: Technology News

PND: The Price is Right for Cengage  

PND: The Opportunity in 200MM Students

PND: Mediaweek Reports 

Michael Cairns is a business strategy consultant and executive.  He can be reached at michael.cairns@infomediapartners.com or (908) 938 4889 for project work or executive roles.

 

Voyager to Take $45mm Charge

Voyager Learning will take a $35-45mm non-cash charge against its 2006 operating results as a result of the sale of Proquest Information and Learning. PQIL was sold in 2007 to Cambridge Information Group for $222mm. The write down represents 20% of the value of the business unit and in retrospect it is hard to understand how that purchase price could have been effectively negotiated given the current accounting disclosures. On the earnings call last week, Mr. Richard Surratt, Voyager Company's President and CEO noted that they will also take a non-cash charge against goodwill for the purchase of Voyager. In November, Mr. Surrat noted that they expected to have their 2006 10-Qs and 10-K competed by the end of the first quarter 2008; however, they are six weeks behind and do not expect to have that work completed until mid-May. They do expect to have their financial reports for 2007 completed by July.

Mr. Surratt went on to note the status of several lawsuit against the company but there is little change here since the last update in November. He was joined on the call by Ron Klausner, President, and Brad Almond, CFO, of Voyager Expanded Learning.

On an operating basis the company appears to be performing consistently and is stable given a challenging operating environment. Mr. Almond commented on the full year results:

For the fiscal year ending December 29, 2007, the Voyager operating business had preliminary revenue of $110 million, earnings before interest and taxes, or EBIT, of $8 million and earnings before interest, taxes, depreciation and amortization, or EBITDA, of $30 million. These three results each fall within the guidance we gave in November. This compares to 2006 preliminary revenue of $ 115 million, EBIT of $ 6 million and EBITDA of $ 30 million.

In his comments, Mr Klausner concluded the call with a number of comments about the operating environment faced by the company.

We have a terrific track record in developing capabilities that address very difficult problems. While some of our competitors are creating uncertainty and doubt about us as a result of the board's decision to consider strategic alternatives, we are encouraged by how well these new capabilities have been received in the market. Based on the explosive growth in usage of Ticket to Read and the early feedback on the redesign of Passport, we continue to be optimistic that our focus on researched based curriculum, high levels of implementation support, embedded professional development, and web based practice will be rewarded.

The company expects to continue their gradual operating improvement with anticipated 2008 revenue in the range of $111 to $119 million, EBIT between $6 and $10 million, and EBITDA between $28 and $32 million.

Call Transcript

Proquest: In Case You Care

Proquest, hereafter referred to as Voyager Learning Company is for sale. The company announced they had retained Allan & Co. to determine strategic options for the company. So far has Voyager fallen, that this news barely caused a ripple of notice from industry outlets. No doubt the bank will already have done the rounds with all educational publishers to gin up some interest. As some will recall, the company has sold all saleable assets of the company over the past four years but it has also been embroiled in accounting irregularities, had its stock delisted and is also the target of copyright and shareholder lawsuits. This is pretty grim news for a company with such a long and illustrious history which included brands such as Bell & Howell, UMI and even R.R. Bowker. (If you are not paying attention they join CQ Press and Haights Cross as recently 'in-play' educational publishers).

The company finally produced their 2005 10K on August 31 last year and announced a few weeks ago that they would produce audited 2006 accounts by the end of first quarter 2008. The only good news about this appalling schedule is that they “anticipate much of the 2007 work will be done in parallel with the 2006 work” and thus may be almost caught up by April.

There have been a number of management changes as a result of the divestitures and the irregularities. The company is now run by Richard Surratt, Voyager Learning Company's President and CEO. The remaining business operations of the company are now in Dallas and Voyager has reduced to 11 the number of employees still in Ann Arbor. (Imagine the morale there). As the accounting becomes clearer so will the current net value of the business; further asset write downs are possible and whether these result in significant income statement charges which in turn result in transferable tax credits remains to be seen. The company did revalue goodwill as a result of their restatement resulting in a $180mm charge to the 2004 income statement.

The company appears to be performing satisfactorily and while they have completed a reinvestment of their core product line they operate in a very competitive marketplace in a down market. The company expects to have $75million to $85million in cash by year end which is lower than planned due to the loss of a copyright lawsuit ($7mm) and lower full year revenue expectations ($3mm).

The company faces a consolidated shareholder suit and the company expects discovery to start sometime in early 2008 and eventually go to trial in 12-24mths. They have lost one attempt to have the suit dismissed. The law issue complicates matters significantly not least because in reading some of the employee agreements (bolstered by stay bonuses) they expect a sale of the company within the next 12mths. Who will be around to defend the lawsuit and who will pay for that? The company also have a derivative law suit that "asserts claims for breaches of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, and unjust enrichment." and "breaches of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, and unjust enrichment" (10k). (Sounds like someone checked every box on the form).

The company combines Voyager Expanded Learning, ExploreLearning and Learning A to Z into the category “Voyager Operating”. The following is from their earnings conference call:

For the three quarters ending September 30, 2007, the Voyager Operating business had estimated and preliminary revenue of $87 million, Earnings from Continuing Operations before Interest and Income Tax, which is referred to here are as EBIT, of $10 million and EBITDA of $26 million. This compares to preliminary revenue of $94 million, EBIT of $13 million and EBITDA of $30 million for the same nine month period of 2006. Due to Q3 results coming in less than expected, we are adjusting our previously issued full year guidance to a range of $106 to $112 million in revenue versus previous guidance of $116 to $124 million. We project a resulting EBIT range of $7 to $10 million versus the original guidance of $10 to $13 million. And lastly we are updating our EBITDA guidance to a range of $29 to $32 million versus original guidance of $32 to $35 million.

Reviewing their 2005 10K shows how significantly the company has been transformed.

• Net sales of $545.9million versus $439.6mm in 2004
• EBITDA of $28.9mm versus $(149.1)mm in 2004 which included a goodwill impairment charge of $180mm
• Full year revenues for Proquest Education (Voyager Operations) were $91mm in 2005
• Proquest Information & Learning revenues were $271.4mm. This is the business unit sold to Cambridge Information Group for the bargain basement price of $218mm in February 2007. Operating income may be a loss of around $10mm - hard to say given the presentation.
• 2005 revenues for the automotive group were $183mm and this unit was sold for approximately $490mm. Go figure.

Documents:

Allan & Co. Press Release

10K

Proquest Suspended

In a press release this afternoon, Proquest advised investors that trading in their shares had been suspended by the NYSE due to their failure to submit various regulatory filings.

The NYSE is suspending trading because the Company now anticipates it will not file its Annual Report on Form 10-K for fiscal year2005 (2005 10-K) with the Securities and Exchange Commission (SEC) by April2, 2007 and is therefore not in compliance with NYSE Rule 802.01E. The NYSE stated that an application to the SEC to delist the Company's shares from the NYSE is pending the completion of applicable procedures.

The company is obscure about when it will be in compliance indicating it will be sometime in the second quarter.

Proquest Guidance

Proquest Guidance

Clearly as a result of the garage style sell off, Proquest are undergoing a significant restructuring and this morning they released an update. The story so far:

The company had a lot of debt, began selling off assets, were hit with accounting irregularities, became embroiled in a subsequent SEC investigation, before they closed the sale to CIG the company announced that the Chairman (Aldworth) was leaving and some pundits said they sold the wrong business. This is were we pick up the story.

• The company is moving all operations to Dallas where the Education division is located which should be completed by the end of 2007. Most staff functions will be eliminated in Ann Arbor with the exception of staff for transition and (presumably) accounting staff needed to deal with legacy issues (like SEC reporting and the investigation)
• Corporate functions transferred to the education unit are expected to be $4-5mm per year.
• They have two buildings with long term leases in Ann Arbor which will soon be surplus to their needs. It is assumed that they will attempt to buy-out the remain lease term but that will be discussed in a subsequent update.
• The company had a significant capital gain on the sale of the business solutions segment to Snap-On tools resulting in capital gain taxes of $60-65mm.
• The company had a significant capital loss on the sale of the information and learning segment to CIG and they will carry-back this loss against the gain in 2005 and they think that $40-45mm will come back as a refund in 2008.
• There is some class action suit stuff going on related to the accounting issues.
• Proquest Education includes Voyager Expanded Learning (acquired 1/31/05), Explore Learning (acquired 2/25/05) and LearningPage (acquired in 2004). Partial year 2005 revenues for the segment are expected to be $91million, EBIT of $7.4mm and EBITDA of $27.7mm.
• Education segment results for 2006 are projected to be Revenues of $117.3mm, EBIT of $12.0mm and EBITDA of $34.5mm.
• Guidance for 2007: Education segment revenues of $116-124mm, EBIT of $10-13mm and EBITDA of $32-35mm.
• 2007 Corporate expenses are expected to be between $30-32mm excluding taxes and interest. They note interest income of $4-5mm but don't project taxes and interest expense.
• There is no note about any subsequent debt repayments, write-downs, or other mitigating factors (like rent buy-outs) that could influence the 2007 results.
• The company still has a lot of financial reporting to do and risks being delisted if they miss an April 2, 2007 due date.

That's the update so far. Stay tuned for more.