In $2.8 billion deal, Houghton Mifflin returns to private equity ownership

Famed Boston textbook publisher Houghton Mifflin Harcourt is turning the page on a nearly nine-year chapter as a public company with a $2.8 billion deal to be acquired by the private equity firm New York company Veritas Capital.

It’s a familiar story for Houghton Mifflin, who previously bounced between public and private ownership. Tuesday’s announced transaction price of $21 per share represents a 16% premium to the company’s closing price on Friday and a 36% premium to the price in mid-January when rumors surfaced about a potential sale.

HMH, as it is often called, has gradually moved into digital products and subscription software over the past decade. Current chief executive Jack Lynch and his predecessor, Linda Zecher, both worked in the tech world before running HMH. It now defines itself as a “learning technology” company, although textbooks remain an integral part of its business, with digital sales accounting for 41% of billings in the quarter ending September.

The previous big chapter in this digital evolution story ended last May when HMH sold its consumer titles, a division known as HMH Books & Media, to HarperCollins for $349 million. This meant that beloved characters such as Curious George and Carmen Sandiego moved to another publishing house, leaving HMH to focus on the K-12 education market.

About 2,300 people work for the company today, including about 400 in Massachusetts. Boston’s workforce has been largely moved away, though Financial District headquarters and other offices remain open for employees to return on a voluntary basis.

Lynch sent a memo to employees on Tuesday, assuring them that there are “no plans to reduce staff at this time.” He added that the company will benefit from additional flexibility and opportunities for expansion and growth under private ownership. Veritas also controls Cambium Learning Group, a Dallas-based edtech company, in its portfolio, but has no plans to merge it with HMH.

“I am confident that the Veritas team understands our goals and is invested in and aligned with our mission,” Lynch wrote. “In fact, all of the companies in their portfolio are focused on leveraging technology to make a positive impact in vital areas of education, healthcare and national security.”

HMH struggled at the start of the COVID-19 pandemic, prompting a wave of layoffs and voluntary retirements in 2020. But business picked up strongly in 2021 and its share price rebounded accordingly. Sales for the first nine months of 2021 increased 25%, year over year, at $872 million (after removing consumer business from comparisons); the company is due to release its annual results on Thursday.

This bounce apparently wasn’t strong enough: shares were trading between $15 and $16 in mid-January, essentially putting them where they were trading after an initial public offering in November 2013. Clearly, some investors had grown impatient, as evidenced by HMH’s recent decision to hire investment bank Evercore to seek a buyer.

Lynch and his management team will continue to lead the privately owned business. In a statement, he said the acquisition of Veritas will help the company increase its impact on the 4 million teachers and 50 million students the publisher supports every day. HMH’s board of directors, led by Chairman Larry Fish, approved the deal, which is expected to close by the end of June.

The company has gone through a card catalog of ownership changes, mergers and acquisitions in the nearly 190 years since its founding as a small publishing business in a Downtown Crossing bookstore.

Houghton Mifflin was owned by private equity two decades ago, after being spun off from media giant Vivendi. Irish businessman Barry O’Callaghan then took control of Houghton Mifflin in 2006; he combined it with his publishing business Riverdeep and bought rival Harcourt the following year. However, it lost control amid mounting debt and pressure from bondholders, after the public textbook market crashed during the Great Recession. Eventually, the company’s debt was restructured and the new owners launched an IPO to recoup some of their investments.

Now it will be Veritas Capital’s turn. “This investment is intended to support our continued growth and transformation,” Lynch added in his memo to employees. “I couldn’t be prouder of what we’ve accomplished together.”


Jon Chesto can be contacted at [email protected] Follow him on Twitter @jonchesto.