What did Pearson really buy when it acquired Author Solutions?

On the IndieReader blog, David Gaughran writes about last week's acquisition of self-publishing company Author Solutions by Pearson. Author Solutions will become an independent business within Penguin. Gaughran writes that Bertram Capital, the private equity company that owned Author Solutions, has been looking for a buyer for the company since March. The company grossed $99.8 million in revenue in its most recent fiscal year, of which 63% came from the sale of services to authors, and only 37% came from the sale of books.

According to Gaughran, "Industry watchdogs such as Writer Beware have received a litany of complaints about Author Solutions and their subsidiaries over the last few years: misleading marketing, hard-selling of over-priced services, questionable value of products provided, awful customer service, and, after all that, problems with writers being paid." He points to Author Solutions' "web-optimized press release" priced at $1,199 as an example of wildly overpriced services, and writes "In case it isn’t obvious, you would likely receive greater promotional value from setting fire to that money on YouTube." Gaughran says that "...the average customer spends around $5,000 over their “lifetime” with the company, but only sells 150 books." Customer dissatisfaction could explain in part why the average author only publishes 1.3 books through Author Solutions (the company claims that it's published 190,000 titles by 150,000 authors.)

It's possible that Penguin could clean up Author Solutions' operations, but first, the publisher has to believe that there are problems. Penguin CEO John Makinson said the following in Pearson's press release announcing the deal:

“No-one has captured this [self-publishing] opportunity as successfully as Author Solutions, which has rapidly built a position of world leadership on a platform of outstanding customer support and tailor-made publishing services.”

Pearson acquires Author Solutions for $116 million

Pearson reports that it has acquired self-publishing company Author Solutions, based in Bloomington, IN, for $116 million in cash. Author Solutions was owned by California-based Bertram Capital. Its back office and technology operations will be taken over by Penguin, but the company will be run as an independent business within Penguin.

Author Solutions has published more than 190,000 print and eBooks for 150,000 authors. Its 2011 revenues were approximately $100 million, split across publishing, marketing and distribution services. The company has approximately 1,600 employees, located primarily in Bloomington and Cebu City, in the Philippines, with a small office in Indianapolis. Penguin will expense the costs of integrating Author Solutions in 2012 and expects the acquisition to be accretive to earnings in 2013.

This is obviously a way for Penguin to profit from the growth in self-publishing, as well as an opportunity to use Author Solutions as a "farm club" for identifying new authors for Penguin's imprints.