A Case Study: A Successful Partnership

A Strategic Partnership Case Study: Penguin Books USA Inc. – Troll Book Club

by Derek Smith, Managing Director at Next Stage Solutions, Inc.| smith@nextstagesolutions.com

In early 1995, Penguin Books USA Inc. formed a strategic partnership with a member of the second generation to acquire Troll Book Club from his parents. This is an example of two parties coming together to form a solution that satisfied their own objectives in an effective and efficient manner.

Penguin Books USA Inc. (“Penguin”)

By the mid-nineties, Penguin was the leading children’s publisher in the US marketplace but its dominance was being attacked by Scholastic Books. Initially a distributor of other publishers books, including Penguin, to the school channel through its book clubs, Scholastic had now established its own imprints and was reducing its dependence on other publishers for product for the book club marketplace. Unlike adult publishing where the retail channel was the most important outlet for products, the school book clubs were a very significant channel and their importance was growing.

In 1994, the company’s senior management in presenting its strategic plan to Pearson Plc, the owner of Penguin, identified that it had two options to combat Scholastic’s dominance – (1) acquire one of the other book clubs, or (2) create its own book club. Penguin identified that the barrier to entry was high as existing book clubs had long-standing loyalties in elementary schools and a new entrant would find it very challenging to succeed. Further, Penguin’s competitors would be reluctant to provide their offerings in Penguin’s catalogues. Accordingly, Penguin’s recommendation to Pearson was to acquire a book club if it became available for sale.

Troll Book Club (“Troll”)

By the mid-nineties, Troll was the second largest book club behind Scholastic. It had a large following in the elementary school marketplace but lacked the financial wherewithal to effectively compete with Scholastic. Further, the owners of Troll had decided that they wanted to step back from active management of the company. Their son wanted to acquire the business but any acquisition would highly leverage the business and limit opportunities to acquire book titles for distribution in the catalogues. Without access to popular books, Troll’s ranking and loyalty in the school book club market would diminish. Not an outcome either generation of the family desired.

Accordingly, Troll management reached out to Penguin management to see if there was an opportunity effect a transaction that would be beneficial to both companies.

Outcome

A new entity was formed between Penguin and the son. Penguin had minority ownership and provided the financing to complete the transaction. The new entity provided Penguin with a secure entry into the elementary school market while allowing the family to make a generational transfer of control. A win for both parties!

Next Stage Solution’s managing directors have been involved in the creation and implementation of strategic partnerships. Let us help you with your strategic partnership and make it a SUCCESS!

 

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