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Posts Tagged ‘Riverdeep’

Riverdeep, Mergers High

The New York Times rightfully wonders just who on earth is this Barry O’Callaghan guy and why he’s not only bought up Houghton Mifflin but now Harcourt Education, thereby turning a small Irish software company into a giant American textbook publisher. Until last year, writes Eric Pfanner, Riverdeep was a relatively small software company, best known for educational programs like Reader Rabbit. If the Harcourt acquisition is completed, the company would vault past McGraw-Hill and Pearson to become the biggest textbook publisher in the United States.

So how did that happen, especially as Wolters Kluwer, Pearson and Reed have been involved in high-profile acquisitions and sales of their own? Analysts say private equity has been attracted to the educational business by steady cash flows, a relative lack of competition and expectations that spending will increase in the coming years as states like California step up textbook replacement programs – but big companies are anxious to sell because educational publishing has lagged behind areas like medical, legal and scientific publishing in the shift to digital distribution.

In comes a company like Riverdeep, where O’Callaghan sees an opportunity to bring into the future an industry long dominated by a handful of big players. “The idea of marrying content with technology holds strategic appeal,” said Drew Crum, an analyst at Stifel Nicolaus in Cleveland. But as the Sunday Business Post reports on what may prove to be the merger’s biggest stumbling block: although valued at $11 billion, the enlarged company has debts of $7.4 billion, according to analysts, and company president Jeremy Dickens admitted there would be an annual interest bill of $400 million. Hence the 11.8 percent stake in HM Riverdeep by Reed to inject some degree of stability. The question is, how far and how long?

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Riverdeep Cuts Interest Bill

The Irish Independent reports that Riverdeep has managed to refinance almost half of a $1.07 billion bridging facility taken out following the company’s $3.5 billion reverse takeover of US educational publisher Houghton Mifflin last year. The paper says initial plans to refinance $250m – or a quarter – of the facility were put on ice earlier this year following the resignation of the company’s auditor, Ernst & Young. “The refinancing will shave $10m a year from the company’s interest bill,” the paper quotes a spokeswoman for the company as saying. But, the refinancing has prompted Moody’s to downgrade its senior secured ratings for Riverdeep’s debt down one level to B1.

Ernst & Young Quits as Riverdeep Auditor

Brokerage firm Ernst & Young resigned last week as auditors of Riverdeep, the private equity company that recently bought out Houghton Mifflin (and is rumored to be in the running to buy Reed Elsevier). The move may hamper progress on buyouts and in securing further loans to manage additional mergers. “As a result of incorrect representations made to us by the Company’s parent in respect of a material contract, the professional relationship between us and the Company has irretrievably broken down and we have concluded that we cannot continue to act as the Company’s auditors,” Ernst & Young said in a statement.

As a result, Moody’s Investors Service said on Thursday it might cut the ratings on a $1.62 billion senior secured term loan, and withdrew its rating on a $250 million add-on to that loan as the company has decided to postpone the increase.

Reed To Sell Harcourt Education Arm

Continuing a theme of “anything is for sale,” Reed Elsevier, mirroring moves by major Dutch and U.S. rivals, said it would sell its education arm as it focuses on faster-growing markets such as legal, medical and scientific electronic publishing. Analyst estimates suggested the sale of Harcourt Education could fetch between 1.6 billion and 2.4 billion pounds ($3.2-$4.7 billion). The Telegraph reports that Sir Crispin Davis, chief executive of business publisher Reed Elsevier, expects strong interest from private equity bidders, and indeed, one such bidder – Irish entrepreneur Barry O’Callaghan, who as CEO of Riverdeep already bought out Houghton Mifflin earlier this year – has expressed interest, according to Forbes.

Alastair Osborne sees the larger theme of companies exiting the education business in droves, and comes up with some reasons, including the No Child Left Behind Act and students’ increasing reliance on web-based materials. Such companies, Osborne says, are left with a “stark choice: invest in technology and systems that power interaction between their content and the network (such as school planning, administration and assessment) or exit the business now while valuations remain attractive.