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Smarter Libraries through Technology: Implications of Company Ownership in the Library Technology Industry

Smart Libraries Newsletter [March 2020]

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Changes in the ownership arrangements of any company in the library technology makes big news. The library community has much at stake in the products and services produced by these companies. Given the deep reliance that libraries have on technology and their long budget and planning cycles, they are sensitive to any possible disruptions.

The continued rounds of mergers, acquisitions, and ownership changes must be seen in the context of an industry that continues to be fundamentally stable. In the last two decades or so, no technology company has gone out of business or filed for bankruptcy protections. The companies within the industry have seen continued gradual growth. Ongoing interest by the investment community in library companies reflects a generally healthy industry.

The companies that comprise the library technology fall within multiple categories of ownership arrangements. Some continue to be owned and managed by their founders. These companies include The Library Corporation, Biblionix, ByWater Solutions, and Keystone Systems. Follett Corporation and EBSCO Industries are large-scale companies owned by the families of their founders. Investment firms own several companies, including SirsiDynix, bibliotheca, and Civica. ProQuest has a complex ownership structure with majority ownership by the founder's family and minority ownership by private equity. Auto-Graphics is the only standalone publicly traded company, though most of the shares are held by the founder's family. The industry also includes nonprofits, including OCLC, LYRASIS, and Equinox Open Library Initiative. Though a nonprofit in the United States, OCLC's operations in Europe operate as a for-profit since library services does not fall within the activities allowed there for charitable organizations.

As I have been following the library technology industry for the last three decades, it is not apparent that any one of these ownership models has proven to be better for libraries than the others. Examples of strong development efforts and good customer service can be found within each model.

Ownership models are also not connected to software licensing. Involvement with open source versus proprietary software spans multiple ownership categories. There is no inherent connection between nonprofits and open source software. OCLC, the largest nonprofit in the industry, creates and supports proprietary software. LYRASIS, another nonprofit, provides the administrative home for many open source software projects and offers commercial support services. Equinox was launched as a for-profit company to develop and support open source software and shifted to nonprofit status in 2017. ByWater Solutions and PTFS Europe are example of for-profit companies providing support services for open source software. EBSCO Information Services, a for-profit company, is involved with both proprietary and open source software. While its internal content delivery and resource management platforms are created as proprietary software, the company has given strategic support to FOLIO as an open source initiative and has made substantial contributions to Koha.

The library technology industry has seen companies follow some common patterns. Most of the companies owned and managed by their founders have transitioned to new ownership models, usually to private equity investment firms or larger companies in the industry. Founders often seek new investors to take ownership of their business to provide an exit as they retire or pursue new projects. Notable examples include Jerry Kline selling Innovative Interfaces to JMI Equity and HGGC, the founders of Sirsi Corporation, recapitalizing the company via Seaport Capital and then selling outright to Vista Equity Partners.

Three companies were founded within universities and were eventually spun out through technology transfer processes. Ex Libris was founded within Hebrew University of Jerusalem, gained venture capital investment, and was eventually acquired by Francisco Partners, a private equity firm. VTLS was founded within the library of Virginia Tech University, which was spun off into private ownership by Vinod Chachra, who ran the company until June 2014 when it was acquired by Innovative Interfaces. Northwestern University created the NOTIS library management system in the 1960s and operated it as a business within the university until its sale to Ameritech Information Systems in 1991. Ameritech divested its library business in 1999 to an investment partnership led by 21st Century Group to form Epixtech, which later became Dynix, and was acquired by Sirsi Corporation in 2005 to form SirsiDynix.

Private Equity has had a major impact on the library technology industry. Ex Libris progressed through three rounds of private equity ownership before its strategic acquisition by ProQuest. Each round represented major investments for product development, business acquisitions, and market expansion. The consistency of executive leadership through each of these rounds is unusual, but a sign of a business strategy based on long-term growth rather than short-term profits. Vista Private Equity initially applied its playbook of containing costs and curtailing product development to SirsiDynix in a way that led to the loss of customers and a weakened reputation. Later in its ownership tenure, it moderated its positions and the company was able to retain at least some of its lost ground. Vista exited its investment in 2014 with the sale of the company to ICV Partners, which has used a gentler hand in its oversight of the company. Under the partnership investment between JMI Equity and Huntsman Gay Global Capital, Innovative did not necessarily prosper. Its sales declined and many of its academic library customers defected to Ex Libris. Innovative's recent efforts to develop a next-generation platform were too little and too late to strengthen its ability to retain or attract academic libraries.

Private equity investments are generally of limited duration. In the library technology industry, private equity investments have ranged from two to eight years. A lengthy investment term can either imply difficulty in assembling an exit or enduring interest in the portfolio company. Given this wide range, it is not possible to accurately predict when any given investment may be ready to conclude.

Exit strategies for private equity investors include selling the company to other investors or to a larger entity that will permanently incorporate it into its operations. In the library industry, companies making these types of strategic acquisitions include Follett Corporation, EBSCO Information Services, and ProQuest.

This issue of Smart Libraries Newsletter features another flavor of ownership. The acquisition of BiblioCommons by Constellation Software, Inc. falls into yet another category. This large publicly traded global corporation acquires technology companies across a variety of vertical markets. These companies, while fully owned by Constellation, continue to operate independently, though under rigorous oversight. Constellation follows what it calls a buy-and-hold strategy, where it never sells the companies it acquires. This ownership model promises to provide a long-term stable business environment. Expect ongoing coverage of BiblioCommons to chronicle whether the company continues its ambitious development agenda and expands its customer base.

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Publication Year:2020
Type of Material:Article
Language English
Published in: Smart Libraries Newsletter
Publication Info:Volume 40 Number 03
Issue:March 2020
Publisher:ALA TechSource
Series: Smarter Libraries through Technology
Place of Publication:Chicago, IL
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Record Number:25072
Last Update:2022-12-05 14:42:41
Date Created:2020-04-20 12:05:00