Inside the ‘Narsil Project’, the bet of a Canadian cannabis businessman by the porn giant MindGeek

Project Narsil offers a glimpse of how some investors viewed Montreal-founded MindGeek, which owns Pornhub, as a lucrative opportunity.

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In the fantasy fiction of the author of The Lord of the Rings, JRR Tolkien, Narsil was a legendary sword. Shattered in a long-ago battle against evil, it is reinforced by an elven blacksmith and wielded again by a man who becomes king.

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Project Narsil, however, was the name given to an attempt by a group of Canadian investors to buy one of the largest porn website networks in the world. Launched last summer and run by Chuck Rifici, a former volunteer Liberal Party CFO who made a lot of money off legal marijuana, Project Narsil was shrouded in a mist worthy of Tolkien’s Misty Mountains and a nondisclosure agreement that a prospective one Investor described me as “one of the most vicious I have ever seen”.

Although the proposed deal ultimately fell through, Project Narsil offers a glimpse of how, even amid media controversy and legal threats, some investors saw Montreal-founded, Luxembourg-based technology company MindGeek owning from companies like Pornhub and Brazzers, as a lucrative opportunity.

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I was able to take a look at the launch pad, which outlines the three objectives of the Narsil Project: 1) Acquire a company, which the platform identifies only as “Narsil”, but whose sources confirmed it was MindGeek 2) Restructure the company and rehabilitate its reputation, making it ready for a sale or a merger with a SPAC; and 3) Get very rich in the process.

“The target of the acquisition is one of the most recognized and undervalued brands in the adult entertainment and technology sector,” reads the presentation platform.

The execution would have involved a private equity firm that Rifici formed to pursue the acquisition, Bruinen Investments. (The name is another Tolkien reference, in this case a river in Middle-earth.)

An archived version of the firm’s website said it was dedicated to providing “the true value of safe, legal and positive online experiences for adults,” and had attorneys, venture capitalists and a former RCMP chief superintendent. in the header.

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Finally, the offer: US $ 525 million for “Narsil”, which the deck described as “one of the most recognized and undervalued brands in the technology and adult entertainment sector”.

That proposition, equivalent to only “2.8 times [MindGeek’s] 2020 Annual EBITDA ”, depending on the presentation platform, could reasonably be called a stinky deal, and for good reason. Although its flagship site, Pornhub, attracts more traffic than LinkedIn and rivals that of Netflix, according to internet data site Similarweb, MindGeek launched itself on the reputation bell in December 2020 after New York Times columnist Nicholas Kristof wrote that Pornhub was “infested with rape.” videos “.

Visa and Mastercard withdrew payment services to the site. The lawsuits of the victims accumulated. Pornhub screamed witch hunts, though it removed millions of videos, banned downloads, and restricted upload capacity to approved content providers.

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Depending on the launch pad, this had a detrimental effect on MindGeek’s bottom line. The exit of Visa and Mastercard resulted in a “total loss of premium and live service revenue,” while the Pornhub content purge resulted in a 10 percent drop in daily traffic per month. “These combined effects have caused revenue to drop 40 percent and EBITDA 70 percent from the November peak,” the statement read.

Rifici et al. saw a business opportunity by pulling MindGeek out of its moral and economic quagmire. “Bruinen will benefit from emerging business models in the adult space,” the presentation platform reads. “Major brands are raving about the opportunity for ethical adult entertainment as a new frontier.”

To polish this top-notch gloss, Bruinen recruited a list of prominent investor types, including media executive Sophie Watts as an advisor and former Inovia VC Malcolm Katz-Larson as a director, according to the archived version on his site. Former RCMP drug czar Derek Ogden, a Rifici colleague at National Access Cannabis, was Bruinen’s “director of global law enforcement relations.”

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And in case potential investors missed the point, Bruinen adorned a presentation platform page with the logos of 17 prominent companies and organizations that Bruinen staff had previously worked for, including Canopy Growth, RCMP, Amazon, Cisco, Deutsche. Bank, Nokia, the Liberal Party of Canada and Inovia Capital.

Investors were more attracted to the monetary advantage of investing in the online porn giant. Bruinen projected that under his ownership, MindGeek would have an EBITDA of US $ 180 million in 2022, increasing to US $ 296 million in 2026.

At first, Project Narsil seemed to be going very well. On June 13, Bruinen’s chief of staff, Sang Trinh, sent an email to potential investors with the subject line “Project Narsil.”

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“Bruinen’s team is in the final stages of acquiring most of MindGeek’s assets, including Pornhub, one of the world’s most popular online destinations,” Trinh wrote, according to a copy of the email I obtained, adding that Bruinen it was “raising $ 100 million in equity and a pre-money valuation of $ 500 million.”

He said the investments would be made through a “continuous flow limited partnership.” Thus, “your association with this company is not disclosed or accessed” in public presentations “as we seek a listing on the Nasdaq expeditiously.”

Then nothing. Bruinen’s website, which had been heavy jargon apparently designed specifically to impress would-be MindGeek investors, was left almost naked sometime between August and now.

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A Globe and Mail report later that month said MindGeek owners Montreal residents Feras Antoon and David Tassillo, along with the shadowy Austrian Bernd Bergmair, also known as Bernard Bergemar, rejected Bruinen’s pleas, along with those of two other Canadian investment groups.

And as my colleague Jon Victor recently reported, MindGeek owners are still charging money. Its ultimate parent company paid at least $ 11.4 million in dividends to its owners in 2020, although the actual figure is likely much higher.

Rifici did not respond to my text or email. Neither Antoon nor Tassillo responded to a request for comment.

I also contacted some of the entities whose logos Bruinen used in his presentation. They weren’t very happy.

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“The party is not involved with the business you have referred to,” Liberal Party spokesman Matteo Rossi wrote in an email. “The use of our logo by Bruinen Investments was unknown to us and without our permission,” wrote Inovia CEO Chris Arsenault, noting that “we are vehemently against investing in adult content.”

One last thing: Bruinen ended his speech to would-be MindGeek investors not with another allusion to the Lord of the Rings, but with a quote from former US Supreme Court Justice Potter Stewart. “Ethics is knowing the difference between what you have the right to do and what is right to do,” he says, words that Bruinen found pertinent in his bid to acquire a disgraced but profitable pornography company.

Of course, Stewart is best known for giving birth to one of the most famous lines in the history of the United States Supreme Court.

In 1964, the court heard a case involving an Ohio theater owner convicted of showing The Lovers, Louis Malle’s 1958 story of restless bourgeois sexuality. In a concurring opinion reversing the obscenity charge, Stewart addressed the difficulty of what exactly constitutes hardcore pornography.

“I know it when I see it,” he wrote.

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Reference-montrealgazette.com

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