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The transition to digital has been tough to crack for traditional textbook publishers. One of the largest of those companies will try to continue the transition as a private company, hoping that the extra capital and institutional knowledge will help.

Houghton Mifflin Harcourt, a Boston-based K-12 education content and technology provider, has finished its sale to Veritas Capital, an investing firm which markets itself as seeking to improve education.

The deal gave the publishing giant an estimated valuation of $2.8 billion based on a price of $21 per share, according to publicly available documents.

Executives of the company say the deal positions them for coming expansions. Its leaders say that student equity, in particular, will be a focus for the company moving forward, though they declined to offer details.

The textbook publisher had announced the sale back in February. But it was controversial because some stockholders felt the offer undervalued Houghton Mifflin Harcourt. Several of those shareholders, including Engine Capital Management, denounced the sale publicly and even reportedly hired a law firm to look into whether the deal was a breach of fiduciary duty.

In the end, the company reported that about 57 percent of its outstanding shares were sold off.

Fragmented and Competitive
The textbook world is much more fragmented and competitive than it was in the mid 2000s, according to experts.

Where traditional textbook publishers once had a stranglehold on the market, they now are struggling to catch up to companies that are native to the digital ecosystem, like Cengage, which had a failed merger with one of the traditional publisher McGraw Hill at the very beginning of the pandemic in 2019.

The transition to digital has been long, much longer than the companies predicted, and traditional publishers have had to tackle thorny questions about how to create and deliver engaging content in the digital age, leading to what experts describe as mixed results.

Like other giant textbooks, HMH has strained to navigate the switch to digital. The publisher has been middle of the pack in recent years, with stronger performance than McGraw Hill but not as good as companies like Pearson, says James Wiley, principal analyst at the research and advisory firm Eduventures. HMH, for its part, has historically downplayed the transition, with CEO Jack Lynch saying they’ve operated from a “sea of calm.”

A Smart First Step
Wiley says that it’s the perfect time for Houghton Mifflin to rethink its model.

“When it comes to development and delivery of digital content, [the business model used by traditional publishing] wasn't meant for us in this modern world,” Wiley says.

He also thinks Veritas was a good choice.

Obviously, the Veritas deal gives HMH access to capital, which is good for them, Wiley says. But the key will be whether Veritas can provide the expertise to help the company switch to the digital ecosystem.

The publisher has to play catchup, he says.

One question is whether HMH will figure out how to use adaptive-learning tools so that its products are more than just a textbook, Wiley says.

Another fertile area for innovation, says Wiley, is developing content and services to help build digital skills.

“I think they have a way to go, but I think it's a good first step,” Wiley concluded.