Life After Restructuring

Barry O'Callaghan started small and went big, transforming his small educational publishing materials company Riverdeep into a behemoth by acquiring larger publishers like Harcourt and Houghton Mifflin.

Those who follow business news in the publishing industry know how that went. Cengage is going there now, a straight path that leads to bankruptcy court and debt restructuring and a quiet death.

Or new life.

HMH is making noises like a survivor looking to launch an IPO. A suitable law firm has been hired to handle the technicalities, and it may not be long before the creditors who had a plan to resurrect a dying whale of a publisher will recoup their investment. They have managed to breath enough life into the carcass that Barry O'Callaghan left behind that they believe the result looks quite attractive to someone who wants to own a piece of HMH.

It is a survivor's tale, one littered with the bodies of the redundant who lost their jobs in the teeth of an economic downturn. Unpaid creditors line the shore as well, those who had to accept pennies on the dollar when the debt was refinanced. The picture is not a pretty one.

What sort of income can be gained from an IPO remains to be seen, with investors most likely wary of sinking their money into educational publishing. The competition in the market is fierce and getting fiercer, with Google Play planning to add textbook rentals in the near future. Electronic publishing is not as profitable as producing expensive textbooks that must be updated and replaced on a regular basis. Indeed, the markets are jittery these days and risks are higher than some might like, those who will sit on their piles of cash and wait to see what happens next.

HMH appeared to be on the verge of washing up dead, choked on a load of debt that was impossible to service. The turnaround is remarkable, and offers hope to those at Cengage who fear for their livelihoods. The ability of HMH to rebound shows that it is possible to undo the damage done by the mania for mergers that marked the opening of the 21st Century. But it will not be pretty.