Tuesday, July 5, 2011

Pearson's Lapse in Concentration



Large corporations are always on the look out for acquisitions. In mature markets, when organic growth is hard to come by, and cash reserves need to be put to productive use, the attractions of acquiring another business and integrating it into current operations are easy to see and make so much commercial sense. 


There are dangers, however. Acquisitions can be strategic and even brilliant - the right business purchased at precisely the right time and for the right price. 


They can also be dumb. 


Pearson Australia's purchase of REDgroup Retail's online business fits snugly into the latter category. This is precisely the sort of acquisition that seasoned managements usually know to avoid like the plague. They are opportunistic - the businesses have just become available, are crying out to be picked up, and are undoubtedly cheap as chips - but they are foreign to normal and well understood operations, and current management has no experience or appreciation of the subtle dynamics that need to be known and respected for them to be successful.


Executives have to guard against the sort of emotional self-pleasuring that successful acquisitions bring. When announced, the press is quoting you, the industry is abuzz and admiring your cleverness, you've got a jump on the competition. Hard to psychologically resist.  


No doubt Pearson assessed this acquisition carefully. A good Australian-based operation, with an excellent Kobo partnership, growing strongly, a loyal customer base, needed by publishers, etc. It would be a shame if it disappeared just because its parent got into difficulty. Revenues now might be only $25 million or so but could well be $100 million in five years time. Penguin, in fact all Australian publishers, just can't sit by and see this business disappear. There has to be strong, vigorous and well-funded, local competition to the off-shore powerhouse, Amazon.


All superficially plausible, but the negatives are overwhelming. Pearson is a publisher, not a retailer, and no publisher understands, or has the skills to manage, specialist book retail operations. They are totally different beasts. They require careful attention, love and continued investment, all the sorts of things that REDgroup didn't bring to the table. As well, retailers have secrets. They know things about other publishers that no individual publisher should be privy to - things like trading terms, promotional deals, forward publishing plans, strategic intentions, etc. It's no use Pearson vowing to run the business 'as a separate entity'. Other publishers will be deeply suspicious, and seek alternatives. 


No doubt Dymocks and other retailers passed a ruler over this business and walked away. The demise of REDgroup's online outfit would not at all have meant that the local industry would have been  denied this growth opportunity. It would've simply been spread around.



4 comments:

Alexander Hetherington said...

"The negatives are overwhelming Pearson is a publisher, not a retailer, and no publisher understands, or has the skills to manage, specialist book retail operations.They are totally different beasts. They require careful attention, love and continued investment, all the sorts of things that REDgroup didn't bring to the table"

Was that meant to be a riddle? I'm confused.I read the press release and it seems to me that they are keeping the personnel who RUN that business onboard and they already know how to run a successful business so why can't they?

It's not rocket science, plenty of smart businesses worldwide diversify their portfolio. Just becasue you don't have the skills to manage a specialist book retail operation doesn't mean other companies couldn't (that was a completely ridiculous statement)

Do you really think retailing and Publishers are the only industries in the world where they know ALOT of secrets about each PLEASE every industry in the world does you only need take a look at the Australian banking industry as an example.

You need to live in the real world Peter and stop hiding in Uni cafe's talking about the good ole days of publishing,you sound bitter.

Tricia On Tour said...

Wow, someone does sound bitter, but I'm not sure it's Peter. In general, I feel this week as if the Australian book world is tilting and will certainly not right itself looking the same as it has always been. I know that Scribo and Red Group pain is more about expecting unrealistic returns from bad decisions. I hope the Pearson decision doesn't fall into that category. The group has always shown itself to be quite sensible about opportunity and management of expectations.

Alexander Hetherington said...

Peter whats his names posting was more about his dislike for big publishers than that acquisition itself by Pearson.

He has no intimate knowledge of that acquisition and he has made ALOT of uninformed assumtions.

He may or may not be proven correct in the future, but don't companies deserve the right to challenge themselves and their staff? I mean seriously how on earth would he know if a company be it Pearson, Collins, Watermark or even Scoupon for that matter had the skills to manage a specialist book retail operation?

It was laughable Tricia he had NO IDEA what he was posting about.

priya said...

Great thoughts you got there, believe I may possibly try just some of it throughout my daily life

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