One of the constant themes of the library technology industry is consolidation through seemingly endless rounds of mergers and acquisitions. This dynamic has reshaped the industry by creating a few large companies that control an increasing proportion of the technology products and services available to libraries. However, that's not the whole story. Along with the industry giants, many small and mid-sized organizations continue to offer important products and add layers of competition that drive innovation and moderate pricing.
In considering these driving forces of consolidation, it is also important to look at the ownership of the organizations involved. Our industry has an interesting mix of for-profit and nonprofit corporations.
The nonprofits, though governed by boards that in some way represent their members or customers, engage in commercial activities, usually in direct competition with for-profit companies. Nonprofits based in the US are required to file reports with the IRS (Form 990) and make them publicly available. These filings include financial disclosures, executive and board compensation, and other details. In the library technology arena, OCLC, LYRASIS, and Equinox Open Library Initiative hold nonprofit status as 501(c)3 corporations. OCLC has a more complex business status because its European operations are not eligible to be designated as charities and operate as for-profit divisions, wholly owned by the nonprofit parent organization.
Nonprofit organizations can enter into mergers and acquisitions. This newsletter has chronicled the many acquisitions of OCLC, including commercial companies such as Capira Technologies (2020), Relais International (2018), HKA (2013), BOND (2011), Amlib (2008), EZproxy (2008), CONTENTdm (2006), Openly Informatics (2006), Fretwell-Downing Informatics (2005), and other nonprofits such as Research Libraries Group (2007). LYRASIS acquired nonprofit DuraSpace (2010) and for-profit BiblioLabs (2021). Equinox reorganized from a for-profit to nonprofit in 2017.
It's interesting to observe an affinity between open source technologies and nonprofit organizations. LYRASIS and Equinox, for example, deal mostly with commercial services supporting open source technologies. OCLC, in contrast, offers mostly proprietary technologies. For-profits can also participate in the open source services arena, as seen with ByWater Solutions and in EBSCO's initiatives surrounding FOLIO.
The for-profit businesses can be privately owned or publicly traded. Companies traded on a public stock exchange must follow designated practices that give current and potential shareholders objective information on which to purchase or sell shares. In the US, the Securities and Exchange Commission oversees the regulatory framework for public companies. Public companies, for example, must file regular reports regarding their financial activity.
As companies evolve and progress through different ownership arrangements, going public is often considered the final stage. Though public companies tend to be quite large, some stock exchanges cater to smaller companies. Public companies remain subject to mergers and acquisitions. In some cases an acquisition can result in a public company returning to private ownership.
There have not been many examples of public companies in the library technology industry. Currently, only one of the library technology companies is public. Agent Information Software, Inc., the parent organization of Auto-Graphics is publicly traded (AIFS). As a small company with around $5 million annual revenue, Auto-Graphics seems quite tiny relative to most public companies.
Several library technology companies have been acquired by the operating businesses of Constellation Software, Inc., a public company based in Toronto. These include those acquired by Volaris: Softlink (2013), PrimaSoft (2019), BiblioCommons (2020), EnvisionWare (2021). CSI operating company Total Specific Solutions acquired Baratz in 2021, and Harris Computing acquired ResourceMate in 2017. Acquisition by CSI can be considered as final status for companies because it has not divested any of the over 400 businesses purchased.
Another big deal involving a public library technology company is looming on the horizon. The proposed acquisition of ProQuest by Clarivate would bring a change of status. ProQuest currently has a complex arrangement with Cambridge Information Group holding majority ownership and the investment firm Atairos as the principal minority investor. CIG is privately owned by the family of Robert N. Snyder. The acquisition of ProQuest has been delayed pending further review by the SEC and is anticipated to close toward the end of 2021, barring complications. A successful completion of the transaction would mean that a significant portion of the library technology sector shifts to a public company, including the technology products and services of ProQuest, Ex Libris, and Innovative Interfaces.
Privately owned companies, for-profits not publicly traded, fall within a variety of ownership arrangements. In the library technology industry, we see three categories. A dwindling number of companies remain privately owned and managed by company founders. These include The Library Corporation, Biblionix, ByWater Solutions, Book Systems, and Media Flex. Some companies remain under founder ownership for many years, or even decades, though most eventually seek new arrangements to support new business strategies or founder retirement.
Another set of private companies have family ownership. These companies are owned by the descendants of a founder, often multiple generations in the past. Family members hold shares in the company, control its board of directors, and may participate in operations and management. Two familyowned businesses participate in the library technology industry. EBSCO Information Services, part of EBSCO Industries, owned by the descendants of the Stevenson family. Shareholders of Follett Corporation are the descendants of Charles W. Follett, who purchased the company in 1920. Current board and management of Follett Corporation includes fourth and fifth generation family members.
Private equity firms have played a big role in shaping the library technology industry through business acquisitions and mergers. These firms usually purchase companies in their entirety and may acquire multiple companies and merge them. Some of the companies currently under private equity ownership include SirsiDynix, owned by ICV Partners since 2015, Bibliotheca owned by One Equity Partners since 2011, and Civica owned by Partners Group since 2013.
The model of direct private equity ownership seems to be diminishing a bit in the industry. Innovative Interfaces and Ex Libris both transitioned out of their previous private equity ownership arrangements when ProQuest acquired them. As noted above, ProQuest itself seems on track to become part of a public company. Private equity firms usually do not retain their portfolio companies indefinitely. It will be interesting to see what new arrangements take shape as the current private equity investments run their course.
When considering the library technology industry as a whole, no clear patterns stand out between ownership status and product innovation or quality of customer support. The larger companies have greater capacity for development. Businesses like EBSCO and ProQuest, for example, have created sophisticated and interconnected suites of products that libraries seem to appreciate. Before the industry began to consolidate in the early 2000s, a large number of small to mid-sized companies struggled in product development. They created ILS products that were not well differentiated from each other and that evolved relatively slowly. The larger companies that emerged have been able to create new types of technologies that diverge from the previously cast product categories.
Beyond size, the different ownership models have not meant major differences to libraries as customers of their products. Regardless of the specific owners or investors involved, the companies are subject to many of the same pressures. Library customers demand products with ever expanding capability, responsive support, and reasonable pricing. They naturally fear higher pricing as the number of competitive alternatives narrows. On the for-profit side, investors impose financial discipline, require operational efficiency, and demand specific profit margins. Ideally, libraries would like to see all the money paid to their vendors fund additional product development and improved support rather than going toward profits, dividends, debt repayment, and fees. Comparisons between the for-profits and nonprofits do not reveal obvious differences in pricing and product innovation. Looking ahead, it will be important to continue to track the ongoing business and technology trends and to identify any opportunities that libraries may have to guide the industry in directions that deliver appropriate technologies within reasonable costs.