$135-Million Deal for Richard D. Irwin Inc. : Times Mirror Will Buy Textbook Firm
Times Mirror on Monday said it plans to buy the college textbook subsidiary of Dow Jones & Co., Richard D. Irwin Inc., for $135 million cash.
The sale, which is expected to be completed in February, would give Times Mirror what it called a “flagship” company on which it hopes to build a college textbook publishing operation.
Irwin, based in Homewood, Ill., is the largest publisher of business and economic textbooks in the country. With 1986 revenue of $57.2 million, it ranks as the nation’s eighth-largest college textbook publisher. It also publishes some books for business professionals.
Textbook publishers have proven attractive acquisitions in the last year or so. In 1986, for instance, Time Inc. paid $520 million to acquire Scott, Foresman & Co., publisher of such elementary texts as the Dick and Jane reader series.
20% Profit Margins
While producing schoolbooks may lack the glamour of publishing novels, it is usually more profitable. Pretax profit margins on textbooks usually run 17% to 20% of sales, analysts said, and publishing them is usually less influenced by economic cycles.
But analysts described the price Times Mirror agreed to pay for Irwin as high. It likely exceeds the 10 times annual cash flow generally paid for textbook publishers recently.
Moreover, most of the textbook companies that sold in the past 18 months were grammar and secondary school book publishers. Because of the baby boom in the 1980s, experts expect these companies to enjoy more sales growth in the next decade than those publishing college texts.
College sales have been growing annually by just 3% to 5% in the past three years, and “college enrollment may be flat or even decline” until late in the next decade, said J. Kendrick Noble Jr., a media industry analyst with Paine Webber in New York.
Long-Term Proposition
Although it is highly profitable and dominates the field of business and economic college texts, “Irwin does not have enormous growth potential right now,” said Victoria Butcher, an industry analyst with F. Eberstadt & Co.
On the other hand, Butcher said, Irwin will require little capital to operate. And Times Mirror, because it owns other technical book publishers, may be able to run Irwin even more profitably than Dow Jones, which has no other textbook operations.
“As a long-term proposition it does make sense,” for Times Mirror, Noble said.
Industry analyst John Morton estimated that Irwin had a pretax profit of $8.6 million in 1986, a profit margin of roughly 21%. Irwin is estimating its sales for 1987 at $62 million, and analysts expect its profit margin to fall below the 1986 level.
Times Mirror, based in Los Angeles, owns eight newspapers including the Los Angeles Times, plus magazines, television and various professional publishing operations. Two of its professional publishers produce some college texts: Matthew Bender & Co., a legal publisher, and C. V. Mosby Co., a publisher of medical texts.
Times Mirror’s interest in acquiring Irwin began roughly a year ago after company officials heard that others were interested, Times Mirror Chairman and Chief Executive Robert F. Erburu said in an interview. But back then, Dow Jones did not want to sell.
About a month ago, Dow Jones Chairman Warren Phillips called Erburu to see if Times Mirror was still interested. “We did this very quickly, in the space of about a month,” Erburu said.
Dow Jones apparently wanted to sell Irwin now in part so it could reduce the debt incurred recently by raising its ownership to 58% from 32% in Telerate, an electronic financial database company.
Dow Jones, based in New York, publishes the Wall Street Journal, Barron’s, various community newspapers, and has rapidly become a major influence in the field of electronic financial data.
“Building a significant position in college publishing to supplement our strengths in professional publishing has been an important strategic priority,” Erburu said.
“This opportunity to acquire the preeminent publisher of college level business and economic textbooks will dramatically accelerate our growth in this field and provide us with a flagship company around which to build,” Erburu said.
COLLEGE TEXTBOOK PUBLISHERS
‘86 COLLEGE REVENUE % OF TOTAL PUBLISHER (MILLIONS) REVENUE Simon & Schuster Educational Publishing $166.1 17.5 Intl. Thomson Organization 141.3 40.4 Harcourt Brace Jovanovich 138.0 19.5 McGraw-Hill Book Co. 123.0 25.2 John Wiley & Sons 78.0 34.1 Addison-Wesley Publishing 68.4 45.5 Time Inc. 55.0 8.3 Richard D. Irwin Inc. 51.4 89.9 Macmillan 50.1 10.3 Houghton Mifflin 46.6 14.5 Harper & Row 42.7 NA Random House 40.5 8.8
Source: Educational Marketer, an industry newsletter
