Digital media companies disagree on future as PSPC market falters

Digital media companies disagree on future as PSPC market falters

Craig Barritt | Getty Images

The digital media industry has reached a strategic crossroads.

Earlier this year, Special Purpose Acquisition Vehicles (SPACs) appeared to be the long-awaited savior of digital media companies. It was planned to repay investors with publicly traded shares of BuzzFeed, Vice, Bustle Digital Group and others with venture capital backing. Some of the larger players will be listed on the stock exchange first, and then these companies will be transferred to smaller peers, who will pay with equity to close the deals. The end result will be some of the largest digital media entities with sufficient global stature to survive.

But when the Securities and Exchange Commission cracked down on PSPC’s accounting practices in April, the booming market almost came to a halt. According to Bespoke Investment Group, an average of 89 new SPACs were issued each month in the first quarter. From the end of April to the end of August, the issue was on average less than 10 per month.

While emissions have declined, others are aggressively seeking PSPC deals. July was the second most important month for PSPC transactions on record.

However, the recent performance of the deals already closed has been weak. Bespoke said overall spot prices are at their lowest level since late 2020. This affects PSPC which has yet to meet targets. Bespoke said that of the 426 post-IPO SPACs that have yet to announce any deals, the average is trading 31 basis points below the IPO price. In other words, investors assume that targeted companies will be increasingly undesirable.

This confused market, with many PSPCs still looking for deals, but very little new PSPC being formed and a clear suspicion permeating transactions, has led some digital media companies to hang on to the PSPC dream, while others reject blank check companies as mere fads. .

There are currently three main camps among digital media leaders: PSPC supporters, PSPC ideologues, and PSPC detractors.

SPAC Believers: Buzzfeed, Forbes, Agitation, Groupe Neuf

The first group believes that PSPC is the best way forward. Brian Goldberg, CEO of Bustle Digital Group, said digital media entities offer steady growth, reliable revenue, and are not speculative with some company projections that have driven PSPC down.

“Generally speaking, the craze for PSPC has shifted, but that doesn’t apply to the world of digital media,” Goldberg said. “Growth has changed in value. This should help the founders of digital media. Wall Street may find that a good deal is generally an attractive multiplier for media CEOs. “

Goldberg said Bustle plans to move PSPC later this year or early next year.

Last week, Forbes announced that it had reached a deal to go public through SPAC after reaching a deal with vacant Czech entity Magnum Opus Acquisitions for a valuation of $ 630 million. On the same day that Forbes announced his deal, Axl Springer agreed to pay around $ 1 billion to Politico, another digital media company.

While this billion dollar exit may seem routine to many large institutional investors, it is well worth it for digital media founders. Goldberg said very few companies in the industry have sold multiples of 5 times their revenue. Politico generates around $ 200 million in annual revenue. That’s a bullish sign for an industry that has come back to life after the pandemic quarantine in 2020, with ad revenue for some time.

BuzzFeed has already found a PSPC partner, although, like Forbes, it has yet to start negotiating publicly. BuzzFeed agreed to merge with 890 Fifth Avenue Partners in June for a valuation of $ 1.5 billion. Chief Executive Officer Jonah Peretti has publicly stated that he expects BuzzFeed to be an aggressive acquirer of other digital media companies – providing another exit ramp for founders who may feel uncomfortable pursuing themselves a SPAC. Eh.

Group Nine, which owns digital brands like NowThis, Thrillist, The Dodo and PopSugar, has already launched a SPAC, which it will use to go public, but only after that to increase the size of the company. One or more fusion partners will be found for.

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Olivia Michael | CNBC

Group Nine’s SPAC, which went public in January, has an added level of complexity as it involves the merger of Target with an existing company rather than going public via an empty ship. According to people familiar with the matter, Group Nine spent an entire year researching targets and chatting with dozens of companies. In addition to finding the right cultural and financial fit, CEOs are more than willing to work together, people said, with several companies stuck in deal negotiations. Still, Group Nine is expected to announce a deal soon, according to a person familiar with the matter. A spokesperson for Groupe Neuf declined to comment.

SPAC Thinkers: Vice, Vox

According to people familiar with the matter, Vice Media Group’s efforts to go public through SPAC were blocked by so-called PIPE (private investment in public capital) investors on the company’s valuation. While Vice hasn’t given up on PSPC yet, he doesn’t have a specific timeline for going public, people said. A spokesperson for Vice declined to comment.

According to people familiar with the thinking of the business, Vox Media had talks with several different PSPCs, but decided not to pursue the deal. Vox is profitable and may choose to exit PSPC for some of the same reasons in the future: Business is good and constantly improving. For private companies that do not need public capital and do not have initial shareholders to receive a return on their investment, they may no longer have the motivation to trade.

SPAC rejectors: Axios, Penske

Axios, the digital news site resulting from the talks to be acquired by Axel Springer in July, and Penske Media Group, which owns publications such as “Variety,” “Rolling Stone” and “Hollywood Reporter” are among those companies. are among those suing PSPC, according to people familiar with the matter.

According to a company spokesperson, Penske has been approached by eight different PSPCs, but has no interest in pursuing the deal given the current market.

A spokesperson for Penske said: “We do not continue or maintain such discussions as we believe this is a short-term game to provide liquidity to opportunistic / greedy investors or new ventures. , which cannot be made public through the traditional IPO process. ” “We are focusing on long-term shareholder value, not the latest investor craze.”

A key piece of the puzzle for digital media will be the market performance of BuzzFeed, Forbes and any other digital media company moving forward with the PSPC merger in the months to come. If stocks crash early in trading, other digital media companies might be reluctant to take their stocks in exchange for the trade. They will also be more careful about pursuing their own PSPC.

If suspicion of PSPC increases in the industry, the grand plan to consolidate and survive as listed entities could collapse. January’s SPAC Pax Romana could end much like the Roman Empire.

WATCH: Buzzfeed CEO to go public thanks to SPAC merger

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