From Publishers Weekly:
I came to the trade division at Houghton Mifflin in fall 2003 as senior v-p of trade sales, at the tail end of the Lord of the Rings movie trilogy. The French conglomerate Vivendi had purchased Houghton a few years earlier, taken it private, and had sold it to a consortium of bankers and investors at a huge loss. Vivendi was the first, but it wouldn’t be the last disastrous foreign investor in what had historically been the highly profitable U.S. education business. Meanwhile, the trade division was coming off an outstanding three-year run thanks to Tolkien—perhaps the best in its long and storied history.
The longevity of HM (founded in 1832) isn’t unique among publishing houses, but it was certainly a source of pride inside the division and within the larger corporation. There was a deep respect for the history, close attention to the present, and a vision for the future. In other words, it was a company that knew what it was about: educating and entertaining children and adults. But dark clouds were forming on the horizon.
The education marketplace had been a cash-rich business for decades, with much higher margins than those in the consumer business. Educational spending was slowly but steadily rising in these years, which attracted investor attention. In short, the industry was ripe for takeover and consolidation. Investors began leveraging these cash-rich businesses, taking on what they thought was manageable debt and looking for synergies across their acquisitions.
In December 2006, Riverdeep Holdings purchased Houghton Mifflin. One year later, Riverdeep purchased the educational and consumer publisher Harcourt Education and created Houghton Mifflin Harcourt. Both purchases were highly leveraged. In need of cash to service its enormous debt, Riverdeep sold the trade imprint Kingfisher to Macmillan, and shortly after, sold the college division to Thompson Learning (now Cengage).
It was in this environment that I was asked to take over as president of the trade division in fall 2007. A year later, the Great Recession roiled the economy and educational spending plummeted. After a tumultuous and difficult year of painful cost cutting, the trade division was put up for sale in 2009. Offers were made, but a deal was never struck. Through several debt restructurings, and a few turnovers in the corner office, the company went public in 2013.
In 2015 HMH made a cash purchase of Scholastic’s EdTech business, but the financial pressures in the education business continued. In 2018, the standardized testing division, Riverside, was sold. In fall 2020, more than 500 employees were laid off. Once HMH made the decision to transition into a primarily digital company, it was only a matter of time before what was called HMH Books and Media (Trade) was sold to continue paying down the debt.
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And now, it’s gone. Yes, the HMH logo will appear on the spines and copyright pages of books and audios for a short while, but the proud and feisty trade publisher we all loved and adored is no more, with the brand to be used by the digital technology company. HMH is now part of history, another merger story, among so many in publishing.
During my 40-plus years in the book business, I’ve experienced my share of mergers and acquisitions, but this one especially hurts.
Link to the rest at Publishers Weekly
Greater Fool Theory
What Is the Greater Fool Theory?
The greater fool theory argues that prices go up because people are able to sell overpriced securities to a “greater fool,” whether or not they are overvalued. That is, of course, until there are no greater fools left.
Investing, according to the greater fool theory, means ignoring valuations, earnings reports, and all the other data. Ignoring the fundamentals is, of course, risky; and so people subscribing to the greater fool theory could be left holding the bag after a correction.
Understanding the Greater Fool Theory
If acting in accordance with the greater fool theory, an investor will purchase questionably priced securities without any regard to their quality. If the theory holds, the investor will still be able to quickly sell them off to another “greater fool,” who could also be hoping to flip them quickly.
Unfortunately, speculative bubbles burst eventually, leading to a rapid depreciation in share prices. The greater fool theory breaks down in other circumstances, as well, including during economic recessions and depressions. In 2008, when investors purchased faulty mortgage-backed securities (MBS), it was difficult to find buyers when the market collapsed.
. . . .
Greater Fool Theory and Intrinsic Valuation
One of the reasons that it was difficult to find buyers for MBS during the 2008 financial crisis was that these securities were built on debt that was of very poor quality. It is important in any situation to conduct thorough due diligence on an investment, including a valuation model in some circumstances, to determine its fundamental worth.
Due diligence is a broad term that encompasses a range of qualitative and quantitative analyses. Some aspects of due diligence can include calculating a company’s capitalization or total value; identifying revenue, profit, and margin trends; researching competitors and industry trends; as well as putting the investment in a broader market context—crunching certain multiples such as price-to-earnings (PE), price-to-sales (P/S), and price/earnings-to-growth (PEG).
Link to the rest at Investopedia