Paramount Agrees to Sell Simon & Schuster to KKR, a Private Equity Firm

Paramount mentioned on Monday it had reached a deal to promote Simon & Schuster, one of many largest and most prestigious publishing homes within the United States, to the private-equity agency KKR, in a serious altering of the guard within the books enterprise.

The deal, for $1.62 billion, will put management of the cultural touchstone behind authors like Stephen King and Bob Woodward within the palms of a monetary purchaser with an increasing presence within the publishing trade.

While non-public fairness traders have had a major footprint within the e book enterprise — totally different corporations have owned literary companies, publishing homes and the retailer Barnes & Noble — the acquisition of one of many largest publishers within the nation vastly will increase the maintain of monetary pursuits within the enterprise.

Richard Sarnoff, who leads KKR’s media, leisure and know-how group, is a well-known title to many within the publishing trade and his involvement is encouraging, mentioned a number of publishing executives on Monday. Mr. Sarnoff has held a number of positions at Bertelsmann, the corporate that owns Penguin Random House, and served as chairman of the Association of American Publishers, a commerce group.

Also concerned is Ted Oberwager, who’s on the board of RBMedia, an audiobook firm, and Skydance Media, which teamed up with Paramount Pictures on “Top Gun: Maverick,” a Tom Cruise motion drama that generated greater than $1 billion.

“This is a positive,” Peter Osnos, a longtime publishing govt, mentioned of the deal. “A great publishing company will be owned by people who will want to respect it.”

Since Simon & Schuster was first put up on the market in 2020, many within the publishing trade have fretted over the place the corporate may land.

A sale to a different writer would imply the brand new administration would perceive the e book enterprise. But it might additionally imply additional consolidation within the trade, with probably fewer gamers obtainable to bid on huge books, and the prospect of layoffs as redundant jobs have been eradicated. It might additionally increase regulatory scrutiny: Paramount’s first try and promote Simon & Schuster, to Penguin Random House was derailed by authorities antitrust issues.

Private fairness, alternatively, might current totally different dangers. Some offers have come beneath elevated scrutiny lately for prioritizing brief time period positive aspects over the long run well being of bought companies. Private fairness corporations have a tendency to not keep possession of their acquisitions for lengthy, portending one other sale of Simon & Schuster, or else a bid to take it public.

As a part of the deal, Simon & Schuster staff will obtain an possession stake within the firm, a part of a program KKR has developed to enhance engagement amongst those that work in corporations it buys. The non-public fairness agency used this mannequin with RBMedia, which KKR acquired in 2018, and not too long ago agreed to promote to a different funding agency. When RBMedia was offered, its long run staff earned a money payout from the sale value as much as two instances their wage, KKR mentioned.

KKR just isn’t new to the books enterprise. In addition to RBMedia, KKR has additionally invested in Overdrive, a digital studying platform utilized in libraries and colleges. Some of these bets have already paid off: KKR agreed to promote RBMedia final month at a considerable premium to its acquisition value. KKR mentioned that beneath its possession RBmedia doubled the scale of its audiobook catalog, from over 31,000 to over 66,000 audiobooks.

The street to Monday’s announcement has been lengthy and bumpy. After Paramount (then referred to as ViacomCBS) reached an settlement to promote Simon & Schuster to Penguin Random House, the nation’s largest e book writer, for $2.18 billion, the Biden administration challenged the sale in courtroom. A decide sided with the federal government final yr. Rather than attraction, Paramount determined to place Simon & Schuster again available on the market, obligating Penguin Random House to pay a $200 million termination price for its hassle, on high of tens of millions in authorized prices.

Though KKR’s provide for the writer is lower than what Penguin Random House had agreed to pay, the distinction within the value is partially offset by the termination price paid to Paramount and earnings from the writer within the intervening years. But KKR is a pretty purchaser, partly, as a result of it’s unlikely to lift crimson flags with regulators.

“Paramount doesn’t want to traipse through another deal that goes bust,” mentioned Erik Gordon, a professor on the University of Michigan Ross School of Business. “It wants to sell the business without more surprises.”