Case Study: Rights and business sales with Natalina Bertoli, Bertoli Mitchell

Natalina Bertoli is Managing Partner of Bertoli Mitchell, a specialist in company mergers, acquisitions, divestments and strategy.

The rights revenue line is of great importance in all publishing sectors, and it can substantially enhance the value of a business. The revenue from rights contracts is sometimes among the most reliable—and profitable—income streams.

Good rights management really shows its worth when you sell a company. Potential buyers will look very carefully at the records of rights you control, and will expect them to be accurate and comprehensive. If you can present that information well, you will make a buyer’s work much easier and enhance the professional impression of your organisation. It can also give you peace of mind about any warranties that are required for the purchase.

It’s not uncommon for a buyer’s review of a business to identify discrepancies in, or other problems with, the rights information they find. And if these affect their assumptions about the value of a business, it may lead to a reevaluation of the sale price.

One company I encountered, with a specialist list and a limited number of buyers, was reliant on a revision cycle for a key book—but it emerged that the important revision clause wasn’t in place in the contract. When the potential buyer spotted that, it had a major impact on its valuation of the business, and led the buyer to question other aspects of the business’s management. Once a buyer loses confidence, it is hard to get it back.

In another case, a publisher agreed to sell a market-leading series of professional books, on the basis that the list was proprietary and entirely owned by the business. But it turned out that rights had not been properly assigned by the creators of the content, and that the contracts required those creators to give consent for any sale—and when they were approached, they insisted on a share of the proceeds. They wouldn’t have had that leverage if the contracts had been properly checked, and the absence of a simple assignment clause ended up costing the business a lot of money.

These examples give a flavour of why publishers who are contemplating a sale at some point need to stay on top of rights management. It’s also important to understand the limitations of rights, because publishers don’t always control all the subsidiary rights they think they do. Due diligence is likely to shine a light on problems, so time spent on rights management now may save many more hours and stress later on in the life of a business.

It is worth bringing in outside expertise if you need it, as a fresh pair of eyes on contracts can spot things that you don’t, and a proper IP audit can be advisable before entering into a sale process. It is nearly always better to accept the investment cost at an early stage than to find yourself in a price renegotiation in the middle of a deal—or worse still, a claim against warranties afterwards.