How McGraw-Hill Went From Publishing Railroad Journals To Downgrading The US Debt

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Photo: Metro Transportation Library and Archive on flickr

McGraw-Hill recently made history in a way that founders James McGraw and John A. Hill would never have dreamed of.McGraw-Hill subsidiary Standard & Poor’s downgraded the US credit rating¬†from AAA to AA+ in an unprecedented decision last Friday.

How did a company that started publishing railroad journals get to here? Actually it’s an impressive story of growth through acquisitions. From journals to magazines to ratings, McGraw Hill diversified without straying too far from its core at each step.

1888: James H. McGraw buys the American Journal of Railway Appliances. Meanwhile, John A. Hill is an editor at a couple trade publications

McGraw was a teacher from upstate New York who recognised the increasing demand for trade information as new anti-monopolistic regulations began driving competition in the booming railroad industry. Congress had just created the Interstate Commerce Commission (ICC) to help control railroads, and enacted the first significant piece of legislature against monopolies with the Sherman Anti-Trust Act in 1890.

Hill was already in the business of railroad trade journals as editor of American Machinist and Locomotive Engineer.

1899-1909: The two start their own publishing companies, and enter a strategic alliance a decade later

Each of them were successful enough to start buying more trade and technical journals, and bundled them up into their own companies. McGraw founded the McGraw Publishing Company in 1899, and Hill the Hill Publishing Company in 1902. The pair's separate stables of journals and magazines both covered the railroad, engineering and mining industries.

McGraw and Hill saw mutual benefit and merged their book divisions in 1909. They flipped a coin -- heads got his surname first in the new company's name, while tails won the presidency.

1917: A year following Hill's sudden death, the companies fully merge, forming the McGraw-Hill Publishing Company

The 54-year-old Hill died unexpectedly in 1916, when a heart condition claimed his life. McGraw became president of the book publishing business, and was able to combine the rest of the divisions of the two companies. The next step was expansion.

1929: McGraw takes the company public, and the first issue of BusinessWeek is published

McGraw-Hill started trading on the New York Stock Exchange in February that year, months before the Great Depression kicked off in September with the notorious Black Tuesday stock market crash.

McGraw launched BusinessWeek later that year, just weeks before the crash. He also bought Aviation magazine, and merged it with another to create Aviation Week. Both publications would prove to be huge, longstanding successes for the next 70 years.

It continued expanding, entering the trade-book industry a year later with the purchase of Whittlesey House.

1935: James McGraw retires and names his son Jay his successor

Both co-founders were gone now, but the company's power stayed in the hands of one of their families. The McGraw's would stay intimately connected with the organisation -- and be prominently represented in its hierarchy -- to this day.

James McGraw died 13 years after his retirement in 1948, at the age of 87. Jay would continue his strategy, aggressively growing the company in the coming years both organically and with acquisitions.

1950s-60s: McGraw-Hill expands heavily in its publishing businesses

The company bought the secondary school piece of publisher Harper & Brothers, expanding into high school education books to capitalise on the baby boom. It also opened new book distribution centres, and acquired another trio of big-name publishing companies. One of these was Platts, which has since grown into the world's primary price assessment firm in energy and metals.

In 1961, it entered the construction industry with the purchase of F.W. Dodge Corp.

1966: McGraw-Hill acquires Standard & Poor's, marking its first foray into financial analysis

S&P dated back to the mid-1860s and had similar roots to McGraw-Hill, as half of the company also started in railroad journals. The other half had been a statistics bureau, which published financial information updates on companies. It had been publishing a stock index since the 1920s, the modern evolution of which is the current S&P 500.

S&P would start rating commercial paper in the late 1960s, and also began charging for its municipal ratings and corporate ratings. In the 70s, it started rating securities companies and mutual funds, and published the first book on ratings criteria.

1970s-80s: A new McGraw takes over, and vast expansion continues

Harold W. McGraw Jr. took the helm in 1975 and quickly had to fight off a hostile takeover bid by financial services giant American Express. After quelling the threat, he began McGraw-Hill's most aggressive expansion in its history.

McGraw gobbled up 14 businesses in financial services, education, health and transportation information businesses. The book division acquired the education parts of Random House, and started a joint venture with Macmillan, which it would later buy outright. These moves and more would make it the largest educational publisher in the country.

2000s: Under yet another McGraw, the company acquires JD Power & Associates and a stable of others

Harold McGraw III was now in charge. and the relentless expansion continued. Here were the biggest moves:

  • 2000 -- Tribune Education, K-12 education
  • 2001 -- Mayfield Publishing, college-level instructional materials
  • 2004 -- Grow Network, state assessments, & Capital IQ, information solutions for financial firms
  • 2005 -- JD Power, customer satisfaction ratings, & CRISIL, India's top ratings firm
  • 2007 -- ClariFI, quantitative portfolio research
  • 2008 -- Umbria, social media analysis

2009-10: McGraw-Hill sells BusinessWeek to Bloomberg and shakes up management

80 years after its first issue, McGraw-Hill sold one of its trademark publications to Bloomberg in a cash deal worth between $2 and $5 million. Bloomberg also agreed to assume the struggling magazine's liabilities.

In an attempt to shake things up the next year, McGraw-Hill named a new president of its education business and a new CFO of the parent. It also re-organised its financial services business into two segments -- one devoted to ratings, the other to analytics.

2011: McGraw-Hill subsidiary S&P downgrades the US AAA rating

S&P sparked widespread controversy when it downgraded its long-term sovereign credit rating on the US from AAA to AA+ on Friday, citing its questions about the predictability, stability and effectiveness of US policymaking. It was the first time the US has ever been downgraded.

McGraw-Hill's website insists that S&P's rating decision-making process is 'separate, fire-walled, and independent.'

Here's what McGraw-Hill looks like today

The company now has four divisions: Standard & Poor's, McGraw-Hill Financial, McGraw-Hill Information & Media and McGraw-Hill Education. S&P is its second-largest division (trailing only Education) in terms of revenue -- it made about $1.7 billion of the company's $6.2 billion in 2010, according to its latest SEC filings.

It currently has more than 20,000 employees and is headquartered in New York City, with Harold McGraw III still serving as CEO.

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