Springer Nature, the world’s second largest academic publisher, has warned investors ahead of its €3.6bn Frankfurt listing next month that potential legal changes and pressure to provide free access to publicly funded research risk undermining its business model.
“Any change in law or policy which reduces or eliminates our exclusive right to the content we publish could affect the demand for our products or the price we are able to charge for subscriptions to our journals,” the publisher told potential investors in its prospectus released on Wednesday.
Springer Nature is the owner of 3,000 scientific publications, including Nature, Scientific American and the BioMed Central series. Academic journals account for about almost three-quarters of its revenue and an even greater share of its profits. Margins in the business are historically strong, due to high barriers to entry and little choice for libraries not to subscribe to relevant journals.
Morgan Stanley analysts describe academic publishing as an industry characterised by “decent growth, high visibility, good margins and strong cash flow characteristics”, and predict that Springer Nature will increase its revenue by just under 3 per cent per year until 2020 while it can defend its rich profit margin.
But in recent years, universities, libraries and individual researchers have baulked at rising subscription fees. Exane BNP Paribas analysts estimate that since 2010, average journal subscription fees have risen 3 to 4 per cent a year. “Journal publishers have strong pricing power,” the analysts note.
A consortium of German universities and research institutes are among those pressing commercial publishers for better terms and conditions.
With roughly 550 open-access journals, Springer Nature’s share in the fast-growing segment stands at about 30 per cent and is twice as big as its share of the overall scientific publishing market. Instead of charging a subscription fee, researchers publishing open-access journals pay a one-time fee to the publisher, which stands at between €1,000 and €3,700 an article.
Open-access journals generate roughly 10 per cent of Springer Nature’s research revenues, and chief executive Daniel Ropers stresses that profit margins are similar. Exane BNP Paribas analysts see Springer Nature’s leading role in open-access publishing as a “unique opportunity” for future growth.
Springer Nature, the product of a 2015 merger between Springer Science and Macmillan Science and Education, last year generated €1.6bn in revenue and €374m in operating income.
The company is 53 per cent-owned by German family group Holtzbrinck, with private equity firm BC Partners holding the rest. Springer Naturevia new shares in its initial public offering. At the midpoint of the price range, Springer Nature’s market capitalisation .
While BC Partners has the option to reduce its stake to below 20 per cent, Holtzbrinck, has committed itself to buying new shares worth €100m in a move that will limit its dilution and underpins the family-run company’s long-term commitment to Springer Nature. After the IPO, Springer Nature’s biggest shareholder will hold just under 40 per cent.
At the upper end of the price range, and including post-IPO net debt of €2bn, the company would be valued at 12.2 times its expected adjusted 2019 earnings before interest, tax, depreciation and amortisation, according to a Financial Times calculation based on Morgan Stanley forecasts. This would represent an 8 per cent discount on Springer Nature’s listed peers.
The publisher has said it would distribute half of its net profit in dividends, promising €110m in payouts for 2018.