One invitation to start: our September 10 DD Forum discussion on the downfall of Germany’s Wirecard is just around the corner. The online event is open to everyone and free to join. Details and how to register are here.

Welcome to the Due Diligence briefing from the Financial Times. Not a subscriber? Sign up here. Drop us a line and join the conversation: Due.Diligence@FT.com

A potential new publishing power writes its first draft

Not so long ago the books business used to be run by the Big Six. With Simon & Schuster now put on the block by ViacomCBS, it looks like the sector could soon be whittled down to four, with one player potentially becoming a lot bigger than the rest.

Thomas Rabe, the chief executive of Bertelsmann, the owner of Penguin Random House, told the FT’s Alex Barker and Erika Solomon on Tuesday that he wants to bid for New York-based Simon & Schuster when the process to sell the publisher starts in coming weeks.

It’s too soon to tell, but if Bertelsmann is successful, it would further enlarge its publishing empire, which already accounts for more than a quarter of the global book market.

Through a series of deals with Pearson since 2013, Rabe (pictured below) brought together Penguin Random House and eventually took full ownership of the sprawling family of 275 separate imprints, which issue some 15,000 titles a year. Its €3.6bn of revenues are 50 per cent larger than its nearest rival, but Rabe sees its size as no obstacle to further deals.

© Bloomberg

There is likely to be some serious competition for Simon & Schuster, a venerable publisher that was home to F Scott Fitzgerald and Ernest Hemingway. ViacomCBS chief Bob Bakish said he had two dozen unsolicited expressions of interest even before deciding to sell the publisher late last year.

The process has been delayed due to the pandemic but is expected to start this month. 

Trade buyers are the most obvious bidders if they can raise the $1bn-plus the publisher is expected to fetch.

News Corp’s HarperCollins has long sought to strengthen its position. So too has the French media group Lagardère, the owner of Hachette, although it may have more than enough on its plate at the moment (as DD readers know).

Would there be any antitrust problems for Bertelsmann? Rabe, who grew up in Brussels and briefly worked in the European Commission, said he “doesn’t think it is an issue”, particularly if regulators take account of Amazon’s power and look at the market “holistically”. 

Rocket Internet’s crash to Earth

The move by Rocket Internet to delist from the Frankfurt stock market just six years after its initial public offering could be seen as another sad indictment of Europe’s failure to produce big winners to rival Silicon Valley.

But more than a few European entrepreneurs may be quietly cheering the German investment company’s failure to light up the markets. 

The Rocket “start-up factory” has been a fixture of the European technology scene since 2007, when the three Samwer brothers — Marc, Oliver (pictured below during the company’s 2014 IPO) and Alexander — launched the venture in Berlin.

© Getty Images

Their modus operandi at the time was as ruthless as it was effective: take Silicon Valley’s best ideas and clone them for the European market. Zalando started out as a rival to the online shoe retailer Zappos. CityDeal was so successful in copying Groupon that its US counterpart ended up buying it. 

The strategy worked, but it didn’t make the Samwers any more popular in London, Paris or Stockholm than they were in San Francisco. “It’s making a lot of money for the Samwers, but it’s killing innovation in Europe,” the French entrepreneur Loic Le Meur told Wired in 2012. 

After listing in 2014 and taking its most successful portfolio companies public, such as Delivery Hero in 2017, Rocket found that its engines were running dry. Its most recent significant exit was Jumia, the African ecommerce group, whose shares have more than halved in value since listing last year. 

Rocket, which is also now trading at less than half its IPO price, said it was delisting in part because it no longer needed to tap the public markets for cash. But the fact that there is so much more capital available in Europe for private tech companies these days is part of the reason that Rocket’s model no longer holds such appeal for entrepreneurs on the continent. 

Even since 2014, Europe has proven that it is no longer just full of copycats: from ecommerce to fintech (Wirecard notwithstanding), from artificial intelligence to transport, European founders are making bigger, bolder bets. 

Some of those founders first learnt how to build a start-up under the wing of the Samwers. But now the ideas are more original, and there are so many more European venture capital firms around to back them, Rocket needs to retool its thrusters if it is to repeat its past successes. 

Law firms are feeling the coronavirus symptoms

From salary freezes, to pay cuts and delayed partner payouts, law firms have pulled a lot of levers to cut costs and ride out the pandemic. But the end of government support schemes and months more of depressed M&A revenue have triggered the start of law firm job cuts

Firms including the US outfit Reed Smith, Bryan Cave Leighton Paisner, the UK’s largest listed firm DWF whose longstanding chief was ousted in May, and the personal injury group Irwin Mitchell are among those with new redundancy rounds, which include plans to slim down overseas offices.

Redundancies are the corollary of lower fee revenue and slim cash margins — common among law firms. But this round of lay-offs is also a story of lawyers learning new tricks — or in many cases — managing their own diaries. That may sound glib, but the rise of remote working has resulted in the digitisation of tasks that have put support roles under threat.

With firms loathe to rely on government support to pay lawyers’ hefty salaries, business support staff and secretaries have been those most reliant. And so those are groups most likely to be affected when such schemes come to an end. 

But fee earners are being affected too. Law firms still have a choice when it comes to reducing their costs, and making cuts. Their first ports of call have been to withhold partner payouts à la Linklaters and Freshfields, and reduce staff salaries, as seen at Baker McKenzie and Cadwalader Wickersham & Taft. Those who choose to opt too early for job cuts before trimming payouts at the top are likely to attract some ire. 

Job moves

  • Deutsche Bank’s top European dealmaker Robin Rousseau has departed for Citigroup. His exit marks the latest in a string of high-profile departures as the German bank undergoes a massive restructuring. More here.

  • The law firm Latham & Watkins hired Andrew Bishop as a partner in its private equity finance practice. He joins the Hong Kong office from White & Case.

  • Brunswick Group hired former Pfizer China government affairs vice-president Xi Qing as a partner in Asia. The PR firm also promoted to the partner ranks Pru Bennett, who joined in May 2019 as a senior adviser from BlackRock.

  • Avonhurst has added Sonya Van de Graaff as a partner in its London office. She joins from Morrison Foerster.

Smart reads

Once upon a time in Atlanta Dismissed by the Hollywood establishment, Tyler Perry hatched his billion-dollar empire in Georgia. His sprawling entertainment ecosystem, from film rights to studio space and streaming stakes, has elevated his net worth past many of Tinseltown’s highest earners. (Forbes)

Lessons from lockdown Despite its many hardships, remote working has also posed valuable lessons to take into a post-pandemic world, as a new style of collaboration reveals employees’ hidden talents and dispels archaic corporate cultural norms. (FT)

Wilted lettuce A workforce in lockdown has squashed the revenue of fast-casual salad chains that once fed the corporate masses. But at least a lull in the “sad desk salad” economy could mean a leg up for independent eateries, and better jobs for the underpaid workers that once kept city centres stocked with sandwiches. (FT, FT)

News round-up 

German parliament to open full inquiry into Wirecard collapse (FT)

Singapore GIC leads $3.4bn deal for Reliance telecom towers (Nikkei Asian Review)

Samsung heir Lee Jae-yong faces charges of stock manipulation (FT)

Soros-backed football finance lender 23 Capital winds down (FT)

Tesla seeks to raise up to $5bn through share sale (FT + Alphaville

Vivendi strikes new court victory against Mediaset’s Dutch plan (Reuters)

Hertz to consider selling Donlen leasing business to pay debt (Bloomberg)

Carlyle buys stake in Chinese healthcare firm for $260m (BBG)

US stocks power to new records as dollar stabilises (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com


Get alerts on Mergers & Acquisitions when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article