Look at Barry O'Callaghan.
He took Riverdeep and dove into the warm waters of leveraged financing, gobbling up whales like Houghton Mifflin and Harcourt Brace, until he fashioned a publishing behemoth that become Education Media and Publishing Group HMH Riverdeep Greenwood etc., etc. etc.
Then he swam along, struggling to stay afloat under a crushing weight of debt piled on debt.
The waters turned cold.
State boards of education found that their budgets were being cut in the face of a global financial decline, powered in large part by excessive amounts of debt taken on by home buyers, bankers and governments.
Thus began the shrinkage.
The little minnow that swallowed publishing whales finally choked to death, a demise long predicted by bean counters who simply didn't find enough beans in the pot to feed a large beast.
As part of its Chapter 11 bankruptcy filing, what is left of Mr. O'Callaghan's creation listed its assets and debits. HMH, which began its existence as a whale, has become more like a minnow.
Granted, textbook sales have not improved in the past few years, and sales forecasts are not rosy. There still is no money to be found in states strapped to meet the basic needs of the citizens.
What effect might you expect in light of all those synergies that Mr. O'Callaghan realized?
To cut costs, employees were given the sack (sorry, that would be synergies) and those who remained had to do more than one job. Reducing the labor force will eventually take its toll, and the bankruptcy court is putting all that shrinkage on display.
There's only so much one person can do in a work day. Which means there's so much that doesn't get done. A company not doing does not grow. Add in declining demand, and you have an over-sized company that has already pared costs beyond the bone.
Then there was the debt---a massive pile of debt that sucked the life blood out of a firm that could not possibly generate enough capital to meet the demand, even with all those synergies running loose.
The minnow swallowed the whale and died. After the bones are picked over in bankruptcy court, what remains might be sold in bits and pieces.
So you think you're a well-endowed financial guru who earned his chops at Credit Suisse? Cold water always causes shrinkage.
3 comments:
This bit from a piece by Jim Miliot at Publisher's Weekly sums up the outcome, even if you skip over reading the numbers:
When it filed for Chapter 11 May 21, 2012, Houghton Mifflin Harcourt reported sales of $1.295 billion and EBITDA of $238 million for 2011, making the company smaller than Houghton Mifflin was itself before it was acquired by Riverdeep in 2006 and before the 2007 $4 billion acquisition of the educational and trade publishing assets of Harcourt Brace.
From what I've read elsewhere, they are not planning to go out of business. They're just going bankrupt. Meanwhile, they continue to announce techie platform initiatives with other companies.
They are gambling on the future of educational publishing, hence the trend towards tech-oriented products.
Structured bankruptcy can help a struggling business survive, but those who end up holding the debt will want a return on the investment.
In general, HMH is a going concern. The question is, will the debt holders sell it off in pieces to maximize their return, or will the hedge funds try to keep the thing going and reap the rewards in the long term?
I wish they'd sell some of the assets, rather than let them linger, wither, and die without updates. But it doesn't look likely.
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