The MindGeek offices in Montreal. Ottawa-based private equity firm Ethical Capital Partners is purchasing MindGeek, the parent company of Pornhub, for an undisclosed sum.The Globe and Mail
MindGeek, the parent company of adult entertainment site Pornhub, is being acquired by an Ottawa-based private equity firm in a deal that will see the complete exit of the pornography company’s controversial long-time owners and majority shareholders – Feras Antoon, David Tassillo and Austrian investor Bernd Bergmair.
Ethical Capital Partners, a newly formed private equity company set up by criminal defence lawyers and a former law enforcement agent with ties to the Canadian cannabis industry, announced Thursday that it had bought MindGeek in its entirety, which includes a large portfolio of adult entertainment producers and distributors beyond just Pornhub.
ECP did not disclose how much it paid for MindGeek but said that, alongside unnamed international investors who helped fund the deal, it now owns 100 per cent of the company’s shares.
MindGeek is registered in Luxembourg but is run out of Montreal. In a brief statement, the company said it was “looking forward” to working with the ECP team.
The new owners say they intend to bring more transparency to a company whose management practices have largely been shrouded in secrecy, due in part to the reclusive posture all three former owners assumed for years at the helm of MindGeek.
Solomon Friedman, an Ottawa criminal defence lawyer and founding partner of ECP, told The Globe and Mail that one of the reasons his company wanted to purchase MindGeek – beyond the financial value it believes the company offers – was to openly promote “consensual and sex-positive adult entertainment” and spark discussions around trust and safety in sex work.
“As we did our due diligence on the company, we also learned that MindGeek has created best-in-class tools for detecting and deterring illegal online activity. We’re excited about this tech they own and we’re very proud to be new owners,” he added.
But restoring MindGeek’s credibility, given the ethical and legal storm the company has been embroiled in for years, might be somewhat of an uphill battle.
ECP’s acquisition comes more than two years after media reports revealed how Pornhub allowed unlawful content featuring underaged girls on its site. The company was subsequently cut off by Mastercard and Visa and hit with numerous civil suits from women alleging content featuring them had been uploaded to Pornhub without their consent.
MindGeek’s business had relied substantially on subscription revenue, so the inability to use major credit cards to pay for content hurt the company’s finances. Last June, Mr. Antoon and Mr. Tassillo resigned from their positions as CEO and COO, respectively, after criticism from the company’s senior management and board and friction with the company’s third owner, Mr. Bergmair.
At the time, sources told The Globe that the three owners were at odds over selling the company, given its declining reputation and financial woes. Mr. Antoon and Mr. Tassillo were keen on selling, but Mr. Bergmair was not. The Globe did not identify the sources because they were not authorized to speak publicly.
Mr. Friedman said that upon closing the deal, his firm’s first course of action will be to re-engage with the credit card companies to hopefully win back their business.
MindGeek has effectively been operating without a CEO and COO after last year’s abrupt departures. Mr. Friedman said ECP intends to have internal conversations about filling those positions but would not say whether he or one of his partners would assume management roles in the company.
The other founding partners include Fady Mansour, also a criminal defence lawyer from Ottawa who ran a law firm with Mr. Friedman; Derek Ogden, a former RCMP officer who was once president of a chain of retail cannabis stores; and Sarah Bain, a public relations strategist.
Mr. Friedman, Mr. Mansour, Ms. Bain and others originally tried to buy MindGeek in 2021 through a company called Bruinen Investment Inc. Chuck Rifici, an Ottawa entrepreneur and one of the founders of cannabis company Canopy Growth Corp., was the lead investor and principal of Bruinen.
According to an investment memorandum obtained by The Globe, Bruinen was prepared to pay US$475-million.
MindGeek reached out to Bruinen that year about a sale after it was cut off by Mastercard and Visa, leaving it in a “distressed situation.” The number of daily active users fell 15 per cent during the first quarter of the year, and the company’s market share shrank 6 per cent, the memorandum says. To address concerns about non-consensual material, MindGeek had deleted all user-generated videos from unverified accounts in late 2020, reducing the amount of content across its tube sites.
Still, Bruinen saw potential for the business, owing to its leading position in the adult entertainment market, which it valued at US$40-billion in the United States alone. Wiping user-generated content also had little impact on finances, according to Bruinen, since it accounted for less than 1 per cent of MindGeek’s revenue. Even after the company lost access to Visa and Mastercard, MindGeek sites still attracted about 124 million daily active users.
Bruinen’s memorandum outlined an “ESG road map” that involved developing partnerships with law enforcement agencies and non-profits, releasing a transparency report and appointing a chief ethics officer. The company also planned to influence regulation by working with governments to develop ethical standards for the adult industry.
The turnaround plan would help MindGeek attract mainstream advertisers, such as alcohol and clothing brands, and increase revenue, Bruinen reasoned. Within a year or so after closing the deal, Bruinen believed, MindGeek could go public through an initial public offering or special purpose acquisition company.
That deal fell apart, though, after Bruinen failed to shore up sufficient cash from investors, according to two sources. The Globe is also not identifying these sources because they were not authorized to discuss the matter.
When asked if there were any plans to take the company public like Bruinen had planned to do, Mr. Friedman said he could not speculate on the future.
In 2020, MindGeek generated US$482-million in revenue and US$186-million in earnings before interest, taxes, depreciation and amortization, a record year for the company that was attributed to pandemic lockdowns, according to the Bruinen memorandum. A New Yorker feature on MindGeek said it received approximately 4.5 billion visits each month in 2020, almost double that of Google and Facebook combined.
But any new owner will also be taking on massive legal liability, given the numerous pending lawsuits against MindGeek across multiple jurisdictions.
The company’s operations are not just confined to adult entertainment. It owns TrafficJunky, an ad network that claims to serve as many as 4.6 billion ad impressions every day on porn sites. But last August, MindGeek was once again dealt a financial blow when Visa and Mastercard announced they were cutting ties with TrafficJunky as well, reasoning that the ad platform provided Pornhub with indirect revenue.