Good afternoon,

Please find below a short comment on the implications for our coverage following the announcement of the Nature / Springer Science merger.

Nature and Springer Science to merge - implications for our coverage (INF & REL)
 

Springer Science (PE owned - BC Partners) and Nature (owned by private Holtzbrinck group) have announced a merger. Springer CEO Derk Hank will act as CEO of the new group and BC owners will own 47% of the share capital (Holtxbrinck 53%). The players are two of the largest scientific publishers and in our view the merger will create significant cost synergies and make their journal collection more 'must have' for university libraries. Nature's smaller, (very) high quality journal portfolio will complement Springer's wider, lower impact factor portfolio. No valuation multiples or synergy numbers have been communicated. BC Partners MD said an IPO was their most likely exit, likely in 2-3 years time.
 

We see a number of implications for our coverage - we expect no major share price reaction.
 

Informa (+) - a takeout of Informa's Taylor & Francis division (c40% group EBITA) is less likely in the shorter term as the two companies combine. Springer and Informa have previously almost combined (2006, 2009). However, in our view, the merger once again underlines Informa's strategic value in a consolidating industry. We note that Springer Nature will remain signficiantly smaller than Elsevier, the market leader, and therefore an eventual acquisition of Taylor & Francis as the next phase of consolidation is a possibility. We expect a broadly neutral share price rection. Informa bears may spin the M&A as a negative for their pricing power although we note that Informa has typically outperformed its larger peers in terms of top line growth. In our view, its smaller market share allows for greater price increases (when accompanied by strong article volume growth), albeit leaving it more exposed to being cancelled at times of budget pressure (although T&F grew over the financial crisis like peers).
 

Reed Elsevier (-) - we see a limited impact for Elsevier (c50% group EBITA). Elsevier remains market leader and 'must have' for clients, although its sheer size (c1/3 content budget for typical library) limits price increases somewhat. Despite the merger, Elsevier remains the dominant player in the industry limiting their opportunity to partake in consolidation.
 

Academic publishing revenue (GBP in 2014) with proforma Springer Nature

Note: reported revenue by academic publishing (i.e includes non-journals revenue)

 

Regards
Will and Sami