Houghton Mifflin's acquisition by Vivendi was the largest deal in publishing in 2001. That makes the divestiture of the Boston-based publisher by the troubled French conglomerate, with its mounting debt, potentially the biggest deal of this year.
The consensus among investment bankers interviewed by PW , all of whom spoke off the record, was that Vivendi is indeed likely to look for a buyer for Houghton. It is clear, one banker said, that Vivendi needs to "de-lever," and since little integration of HM into Vivendi has taken place, the publisher could be sold relatively cleanly. "There's no need to unbolt anything. Houghton is a discrete asset," the banker said.
There was disagreement among the bankers about how many companies would be interested in HM. Some of the likely candidates, such as Pearson, McGraw-Hill and Reed Elsevier, could run into antitrust problems, especially at the el-hi level. Meanwhile, a factor that could keep financial buyers away is the heavy capital investment needed to compete in the el-hi and college markets. And without another property to add HM to, a financial buyer would not benefit from the economies of scale enjoyed by the largest educational publishers.
Under one banker's scenario, the possible dearth of acquisition candidates, coupled with the slowing growth of HM's largest market—elementary and high school publishing—means that few companies would be willing to pay a premium price for HM, making it difficult for Vivendi to get back the $2.2 billion it paid to acquire HM.
Other bankers, however, said that because HM owns unique assets, there would be a fair number of companies interested in at least a piece of HM. One open question is whether HM is worth more sold as a unit or in pieces. "There are a lot of bankers buzzing around New York now trying to figure that out," a banker said. The college and testing segments are considered the most valuable assets, although the el-hi segment would command the highest price because of its size. The trade and reference group, which has had several strong years, would probably sell for about 1½ times revenues if it were sold separately.
Unlikely to get in the way of a possible sale is the July 1 appointment of Hans Gieskes as HM CEO. While widely regarded as a good executive, sources said some HM executives were disappointed that a person with experience in educational publishing wasn't named to the post. "It [educational publishing] has a steep learning curve," said one banker, a curve whose climb might take a lot of time. And it has become clear in the last few weeks that time is something Vivendi doesn't really have.
