"HGGC Explores $4 Billion Sale of Typeface Firm Monotype"

Dave Crossland

https://www.bnnbloomberg.ca/hggc-explores-4-billion-sale-of-typeface-firm-monotype-1.1977866 - bold emphasis mine:

HGGC Explores $4 Billion Sale of Typeface Firm Monotype

by Ryan Gould and Gillian Tan, Bloomberg News

(Bloomberg) -- Buyout firm HGGC is exploring a sale of Monotype Imaging Holdings Inc. that could value the typeface firm at more than $4 billion, including debt, according to people familiar with the matter.

HGGC is working with a financial adviser to gauge takeover interest in the Woburn, Massachusetts-based company and is expected to launch a formal auction process in the coming weeks, said the people, who asked not to be identified because the matter isn’t public.

No final decision has been made and HGGC could opt to keep Monotype, the people added.

A representative for HGGC declined to comment, while Monotype didn’t immediately respond to a request for comment.

Monotype, which was taken private by HGGC in a $825 million deal four years ago, will be pitched to industry players and other private equity firms, according to the people. The company generates annual earnings before interest, tax, depreciation and amortization of more than $200 million, they said. 

Monotype has been acquisitive under HGGC’s ownership. In 2021, it acquired Hoefler&Co, whose typefaces include the Gotham font. In March, Monotype formed a partnership with design platform Canva, and in July it struck a deal to buy Tokyo-based Fontworks, a provider of Japanese type design, from SB Technology. 

With more than 40,000 fonts, Monotype Fonts is the industry’s leading font management platform, according to its website. The subscription-based service includes typefaces such as Helvetica, Univers and Frutiger.

Related:

https://pluralistic.net/2023/01/21/potemkin-ai/

https://www.lifelitter.org/p/enshittification

"Maybe Toys R Us would have had a better chance at adapting if it hadn’t been saddled with private equity-induced debt. But of course, we’ll never know." – https://www.vox.com/the-goods/2020/1/6/21024740/private-equity-taylor-swift-toys-r-us-elizabeth-warren

https://typo.social/@litherland/111149294103406401 + replies

https://typo.social/@letterror/111149640427929541 points to https://www.asimplemodel.com/insights/private-equity-roll-up 

André Simard

I wonder if this happens, how the fontes sales industry will react and what kind of reaction it might cause. Any thoughts?

John Hudson

From conversations at ATypI and TypeCon, I think a lot of us presumed this was coming, and that the push to acquire of other foundries’ font IP was to get as many notional assets onto the books before trying to sell the company.

George Thomas

I wonder how much of that $4 Billion will be from organized crime's money laundry?

Patrick Griffin

$200M net sounds artificially inflated. But even if it is real, after TDA it would be about $100M, and after salaries and expenses it would be even less. $4B means they're asking for a multiplier in the range of 40x-50x, which is about 10-15 times as much as they've been offering all the foundries they've pursued the past few years. I can't see any company willing to take a 40-year chance on an ROI, let alone "industry players". Maybe if they can somehow wrangle Musk into a situation where he'd have to air some dirty laundry...

Mark Simonson

From conversations at ATypI and TypeCon, I think a lot of us presumed this was coming, and that the push to acquire of other foundries’ font IP was to get as many notional assets onto the books before trying to sell the company.

I’ve been thinking this since early this year when they started pushing the new distribution agreement. The terms were so heavily tilted in their favor—especially against competing distributors—that it appeared as if they were doing whatever they possibly could to raise the value of the company.

Diego Aravena

What really strikes me is how insignificant this news would be if Monotype weren’t a monopoly controlling such an important part of the market... Is there a solution to this phenomenon, or do we just sit back and watch how it develops?

Mark Simonson

They have a big marketshare and control a lot of valuable font IP, but not all of it. There is still Adobe (not ideal in many ways but better for now), and there are many foundries doing well without MT, or Adobe in some cases.

Diego Aravena

Thanks for the response; I appreciate it. I'm just curious about what the future holds for the industry. Maybe, after the Monotype situation, other companies will have to be more open, like Adobe (it's hard to get there). Or perhaps a new distributor will step in to even the playing field. It's something I find interesting. I imagine foundries can thrive without Monotype or another intermediary because they have established clients. I honestly believe that in the developing world, this might not be as feasible, or perhaps there aren't as many people willing to pay for type services.

Christopher Slye

What do you mean by “other companies will have to be more open”? You mean other distributors will need to be more permissive in who they accept?

John Hudson

Rather than auctioning the company, I think it would be more interesting—and way more fun!—if Monotype’s owners were to auction the font IP, family-by-family, in random order. Let’s find out what’s actually worth what. There are things I would bid on. 

Dave Crossland

Ahahah John. Me too, me too. 

Enrico Sogari

So, because of this news, let’s assume that whatever Monotype has done, said, promised in the past two years was aimed to achieve this.

Diego Aravena

Christopher Slye said:

What do you mean by “other companies will have to be more open”? You mean other distributors will need to be more permissive in who they accept?

Yeah, do you think that's a good idea?

Before 2018, MF accepted everyone regardless of their quality. If you wanted to compete with others, you could, no matter your location. You could live in a place with a weak creative industry and no social capital, with a laptop and internet, you could actually make a living. There was freedom. Additionally, MF used to create value around quality, with initiatives like the Creative Characters book and the monthly newsletter. However, everything changed for the worse after 2018. There was no more focus on quality, no more filtered products—just competing for a few crumbs.

Dave Crossland

John Hudson said:

Rather than auctioning the company, I think it would be more interesting—and way more fun!—if Monotype’s owners were to auction the font IP, family-by-family, in random order. Let’s find out what’s actually worth what. There are things I would bid on. 

Some independent type people I was chatting with noted: It's possible though that the "business value" on offer here is not the typefaces themselves, but the half cornered marketplace. And even that may not be the marketplace of typefaces, but the marketplace of foundries

Patrick Griffin

Dave Crossland said:
Some independent type people I was chatting with noted: It's possible though that the "business value" on offer here is not the typefaces themselves, but the half cornered marketplace. And even that may not be the marketplace of typefaces, but the marketplace of foundries

Even so, the $4B ask is hard to justify. What we call the "marketplace of typefaces/foundries" has changed drastically in the last 4 years. There is dramatic saturation and plenty of headwinds from incidental competitors with so much more than typefaces on offer — like the Adobe CC programs or Google's suite of apps — whose user bases have been thoroughly trained by now not to expect fonts to have any licensing overhead.

Such a big number these days can only be justified within extreme contexts of big data, and probably all kinds of loopy AI potential. I would be very surprised if they get what they're asking for, but stranger things have happened. Deals that high up in the clouds can be rooted in a lot of voodoo. 

Igor Petrovic

Agree with Patrick. 4B divided by 40k is 100k. Even if 40k fonts means families and not styles, it sounds strange. Given those numbers are the only tangible argument in the text, if they are not justification then anything else can be, and I am surprised it is not 8B or 12B, etc.

As George said this looks pretty shady to me. But it's their business and we should take care of ours. This might be the point to raise the question is it really that one can't easily remove the font from MyFonts, but has to hide it? Is it a legal behavior from them?

Stephen Coles

Sorry for the minor diversion…

Diego Aravena said:

Before 2018, MF accepted everyone regardless of their quality.

That’s not quite true. There was a foundry review board for around 5 years, roughly 2013–2018. At ATypI 2015, Jan Middendorp revealed that the board rejected 60% of submissions since its founding (in late 2012 or early 2013, I believe).

Stephen Coles

In a Mastodon post, @Erik van Blokand enlightened us with the concept of the private equity roll up.

Marc Oxborrow

Patrick Griffin said:

$200M net sounds artificially inflated. But even if it is real, after TDA it would be about $100M, and after salaries and expenses it would be even less. 

Point of clarification: EBITDA (earnings before interest, taxes and amortization)  includes salaries and expenses.

Grzegorz Luk (gluk)

big fish eat the small fishes and then comes ...

Patrick Griffin

Marc Oxborrow said: EBITDA (earnings before interest, taxes and amortization)  includes salaries and expenses.

Yep, my bad. Thanks for the correction. Still a 40x multiple, though. This is the kind of figure tech companies were using to value themselves during the pandemic. Proponents of such high valuations were claiming endless potential growth because internet/data/AI/etc. Would be interesting to see what kind of debate class acrobatics it would take to classify Monotype as a tech company with a limitless ceiling.

Stephen Coles

Christine Bateup (of Frere-Jones Type) has a take.

Diego Aravena

Stephen Coles said:

Sorry for the minor diversion…

Diego Aravena said:

Before 2018, MF accepted everyone regardless of their quality.

That’s not quite true. There was a foundry review board for around 5 years, roughly 2013–2018. At ATypI 2015, Jan Middendorp revealed that the board rejected 60% of submissions since its founding (in late 2012 or early 2013, I believe).

Yeah you're right. Sorry about that. I should have said that it's easier to sell your fonts there than other more exclusive intermediaries. It's what I have experienced during my years as a typeface designer. 

Diego Aravena

I don't mean to change the topic, but if we agree that the current value is partially justified because of data. A theoretical solution could be Web 3.0 (just an idea before tech-savvy individuals criticise everything about it). If this theory proves successful, it could potentially reduce the value of these big companies, and we can turn a bloated whale into a healthy fish.

Dave Crossland

@Eli Heuer has a take:

https://twitter.com/eliheuer/status/1708331807073321119

Caren Litherland

Stephen Coles said:

Christine Bateup (of Frere-Jones Type) has a take.

I really appreciated Christine’s thread, which ended on this hopeful note (my emphasis):

There are ways we can work against Monotype to try to ensure the longer-term health of the independent type industry and create alternative exit strategies, but turning to a different PE source sure isn't it.

Short of much tighter regulation, I’m not sure how we do this. Especially in the US, PE has been allowed to run amok with minimal regulation and virtually no oversight. I do think that more open, public discussion of this is extremely positive, though. Sometimes there can be this sense that such developments are inevitable. They’re not. They can be undone. I’m just not sure exactly how Awareness and solidarity are steps in the right direction.

Part of the problem imho is that there are very wealthy people in the industry who cynically could not care less about the long-term health of the independent type industry. These folks aren’t really interested in type; they have other goals.

Nadine Chahine

The asking price ($4 billion) is not the price of the font IP but a projection of how much profit the company will make over the next few years. If Monotype owned the same number of fonts, but did not have a choke hold on digital distribution, all the OEM contracts in place, and all the historical contract in printer imaging, the valuation would be way less. Similarly, its value would be lower if it were not as aggressively pursuing infringements with sky high prices, as far as I've heard.

So the valuation is not about the fonts, but how much money can be extracted via these fonts.

The important thing to understand here, is that Monotype's scorched earth strategy of the past few years has been in pursuit of a higher valuation, and that many in the font industry will suffer because of these policies. 

Patrick Griffin

Nadine Chahine said: So the valuation is not about the fonts, but how much money can be extracted via these fonts.

Exactly. But the projection has to at least make some kind of sense, dunnit? Through which business model would one be able to extract a bare minimum of $4.x billion in 4-6 years from the fonts currently owned by Monotype? An army of lawyers hounding people for inadvertent infringement? Policies that squeeze suppliers out of the platforms that supposedly promote them? These are their practices right now, and they're supposedly getting them $200M/year. That makes for quite a long time to recoup a $4B investment.

I've been around the block a few times and have seen this kind of thing many times over in type and other industries. This time, though, it's particularly egregious because the contractual terms these PEs have been normalizing on their way up the valuation ladder end up making everyone's fonts look scary to most potential users — which feeds right into the protective inclination to avoid that whole rabbit hole and opt for the overhead-free font instead. We're about to enter a world in which the moment you mention that you make fonts you will perceived as a greedy troll.

Christopher Slye

Caren Litherland said:

Stephen Coles said:

Christine Bateup (of Frere-Jones Type) has a take.

I really appreciated Christine’s thread, which ended on this hopeful note (my emphasis):

There are ways we can work against Monotype to try to ensure the longer-term health of the independent type industry and create alternative exit strategies, but turning to a different PE source sure isn't it.

Short of much tighter regulation, I’m not sure how we do this. Especially in the US, PE has been allowed to run amok with minimal regulation and virtually no oversight. I do think that more open, public discussion of this is extremely positive, though. Sometimes there can be this sense that such developments are inevitable. They’re not. They can be undone. I’m just not sure exactly how Awareness and solidarity are steps in the right direction.

Part of the problem imho is that there are very wealthy people in the industry who cynically could not care less about the long-term health of the independent type industry. These folks aren’t really interested in type; they have other goals.

I’m not sure how regulation could practically be applied here. Monotype is fairly transparent with their PE-backed leadership, but they have still acquired lots of IP from willing sellers. It’s unfortunate that so many have sold out to Monotype, but I have to assume each seller was aware of what they were doing. It’s nice to imagine that some might regret it now.

What’s very interesting to me is how Monotype’s customers have responded to their sales tactics. Monotype does a very good job of pissing them off. To be clear, I don’t think all MT’s customers hate them, but in my work I have been on the receiving end of customers desperate for an alternative to Monotype. (One enterprise customer told me they despised MT and vowed to never do business with them again. It was the result of their brutal sales tactics.)

IMO, those who see selling out their IP to PE as their best or only choice need alternatives — anything that doesn’t result in their type being thrown into a pool of PE-controlled IP that is increasingly regarded as generic “content” to be aggressively monetized. In my experience, some type customers really do appreciate having a connection to type creators and, if nothing else, appreciate having a friendly, helpful partner in untangling their licensing needs.

But in any case, I totally agree there are people involved who don’t really care about type. It’s avaricious, and that is both common and depressing.

Patrick Griffin

Christopher Slye said: Monotype does a very good job of pissing them off. To be clear, I don’t think all MT’s customers hate them, but in my work I have been on the receiving end of customers desperate for an alternative to Monotype. (One enterprise customer told me they despised MT and vowed to never do business with them again. It was the result of their brutal sales tactics.)

Same here. The cheeky twist is that Monotype's customer-repelling tactics over the past few years brought our way plenty of business we wouldn't otherwise get. The flip side of course is that people burnt by Monotype end up approaching you from a very reserved place and you have to do a lot of calming and reassuring.

One thing nobody brings up in all these it's-a-tough-going conversations is the blacklists. The first time I saw a foundry/distributor blacklist hanging on cubicle walls in film studios and publisher offices was about 16 years ago. I was shocked and reeled a bit about that entire practice. I see different versions of those blacklists all the time now, and they certainly do make sense to me. The reasons I am given for placing certain foundries/distributors on these lists range from high-handed or gotcha licensing terms, too much litigiousness, upsells, unsolicited or threatening approaches, etc. I still have that first list I saw in New York City 16 years ago. All the foundries/distributors on it, about 30 of them, are now in various states of disrepair/disfunction — from having ceased to exist, to having been acquired, to running on auto-pilot. The most recent blacklist I saw was at an ad agency in downtown Toronto a few months ago. It said something like DO NOT BUY FONTS FROM THESE WEB SITES. You can probably guess what the first five entries were on there, and if you believe they're worth $4B, I've got a bridge to sell you.