Sunday, August 19, 2018

Selling Your Publishing Company: Where Lies the Danger for Indie Publishers?

When the owner of an independently operated publishing company wishes to sell their company, they will need to establish the value of the business they have built. The sale price will be based on the discounted cash flow of the company, and, ultimately, the soundness of its author agreements. Many start-ups are poorly financed, and in the beginning the owners have neither the time nor foresight to focus on their most important asset, their author contract template. This error at the outset of a publisher's career can frustrate their ability to sell the company in later years.

Pre-Exit Planning for Independent Publishers

Problems often arise when publishers borrow an agreement found online.  Lacking  legal acumen, a start-up publisher may delete important provisions that they do not fully understand - or inadvertently carry forward a "poison pill."  For example, an anti-assignment clause.   Generally, a contract is fully assignable unless it contains such a clause. 

Sample Anti-Assignment Clause
Sinclair Lewis' "Kingsblood Royal"
Experience is a hard school.   To illustrate:  Owen, a successful independent publisher, with a backlist of 65 books, decides to sell the assets of his company.  In his late-50s, with no children to take over the business, his exit strategy is to bankroll the sale of his growing company into an early retirement.  As part of the seller's due diligence process he compiles all of the company’s author agreements, foreign translation licenses, financials and other important documents for a prospective buyer to review. To his dismay, his attorney and broker call to say the deal has gone south because the publishing agreement he filched off the Internet when money was tight, contains a non-assignment clause.  The clause reads, “Neither this agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior express written consent of the other. 

What should have been a straight forward business transaction, now requires the consent of all of Owen's authors, and in one instance, all of a deceased author's uncompromising heirs. Plus, the author of the crown jewel of Owen's backlist (which generates 50% of the company's gross annual revenue) will use the pending sale to renegotiate her contract -- a contract she desperately wants to get out of.  Is there a way around the discretionary power Owen inadvertently invested in his authors?  Perhaps.  

There are two ways to buy a company.  Stock sales and asset sales.  In certain states the acquisition of stock in the target company will not violate an anti-assignment clause.  However, buyers prefer assets sales.   

If an agent, or author, wishes to insert an anti-assignment clause in your agreement, resist.  Or, consider carving out exceptions for the sale of substantially all of your company's assets, or the sale of the company to a related company.  
TIP:  If you change a boilerplate contract clause for a particular transaction, be careful not to use the revised contract as a template for future deals, unless that is your express intention.
While there are publishing programs at many universities, and organizations such as the IBPA to educate future publishers, at best you will receive an introduction to contracts.  When starting out, don't hesitate to hire a lawyer familiar with the industry.  There are a fair number of attorneys across the country who are intimately familiar with the book publishing industry.  You can't afford not to call one of them.   

If you want to succeed as a publisher you must have a well drafted author-publisher agreement.  Then, through persistence and luck, you are in a position to make the most of the opportunities ahead. 

Lloyd J. Jassin is a publishing attorney and entertainment lawyer.  He counsels clients on contract, licensing, copyright, trademark, unfair competition, defamation, right of privacy and general corporate law matters. His practice includes drafting and negotiating publishing and entertainment industry contracts, intellectual property due diligence, trademark prosecution, dispute resolution and litigation. A graduate of Benjamin N. Cardozo Law School, he is co-author of The Copyright Permission and Libel Handbook (John Wiley & Sons).  He can be reached at 212-354-4442 or via email at

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