Digital media companies disagree on future as PSPC market falters

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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. BuzzFeed, Vice, Bustle Digital Group and others with venture capital backing had a plan to reimburse investors with publicly traded stocks. A few of the larger players would go public first, and these companies would then pool their smaller peers, paying with equity to close deals. The end result would be a handful of larger digital media entities with enough global scale 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. In the first quarter, an average of 89 new SPACs were issued each month, according to Bespoke Investment Group. From April to the end of August, emissions dropped to less than 10 per month on average.

While emissions have plummeted, the remaining PSPCs are aggressively seeking offers. July recorded the second-highest month of PSPC transactions on record.

However, the recent performance of the deals already closed has been poor. Global space prices are at their lowest since late 2020, Bespoke said. This affects PSPCs that have not yet found targets. Of the 426 post-IPO SPACs that have yet to announce a deal, the average is trading 31 basis points below its IPO price, Bespoke said. In other words, investors assume that target companies will be increasingly undesirable.

This confused market, with many PSPCs still looking for deals but very few new PSPCs in the making and a clear skepticism reigning in transactions, has led some digital media companies to cling to the PSPC dream while d others dismiss blank check companies as a fad. .

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

SPAC Believers: Buzzfeed, Forbes, Agitation, Groupe Neuf

The first group continues to believe that SPAC is the best way forward. Digital media entities offer steady growth, reliable revenue, and aren’t as fancy with projections as some of the companies that led to the PSPC downturn, said Bryan Goldberg, CEO of Bustle Digital Group.

“Generally speaking, the PSPC mania has moved on, but that doesn’t apply to the world of digital media,” Goldberg said. “There has been a shift from growth to value. This should help the founders of digital media. What Wall Street normally sees as a good deal can be an attractive multiple for media CEOs. “

Bustle plans to pursue a SPAC later this year or early next year, Goldberg said.

Last week, Forbes announced that it had reached a deal to go public through PSPC after reaching an implied $ 630 million valuation deal with blank check entity Magnum Opus Acquisition. On the same day that Forbes announced his deal, Axel Springer agreed to pay around $ 1 billion for Politico, another digital media company.

While this billion dollar exit may seem routine to many large institutional investors, it is significant to digital media founders. Very few companies in the industry have sold at a multiple as high as 5 times revenue, Goldberg noted. Politico generates around $ 200 million in annual revenue. That’s a bullish sign for an industry that has come back to life after pandemic quarantines in 2020 briefly rocked ad revenue.

BuzzFeed has also already found a PSPC partner, although, like Forbes, it has yet to start negotiating publicly. BuzzFeed agreed in June to merge with 890 Fifth Avenue Partners 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.

Group Nine, which owns digital brands like NowThis, Thrillist, The Dodo and PopSugar, has already launched a SPAC that it will use to go public – but only after finding a merger partner (s) to increase the size of the company. ‘business .

Ben Lerer

Olivia Michael | CNBC

Group Nine’s SPAC, which went public in January, has an added level of complexity as it involves merging a target with an existing company, rather than just going public via an empty ship. Group Nine has spent the whole year looking for targets and has had conversations with dozens of companies, according to people familiar with the matter. Finding the right cultural and financial fit, with CEOs keen to work together, has stalled negotiations with several companies, the people said. Still, Group Nine expects to announce a deal soon, according to a person familiar with the matter. A spokesperson for Groupe Neuf declined to comment.

PSPC Considerations: Vice, Vox

Vice Media Group’s efforts to go public through SPAC have stalled, as investors known as PIPE (private investment in public capital) balked at the valuation of the company, according to people familiar with the matter. While Vice has yet to give up hope in a SPAC, he currently has no specific timeline to release it to the public, people said. A spokesperson for Vice declined to comment.

Vox Media has also had conversations with a number of different PSPCs, but has not made the decision to close a deal, according to people familiar with the business’s thinking. Vox is profitable and may choose to forgo PSPC for the same reasons for going forward: Business is good and improving steadily. For private companies that do not need public capital and have no pressing shareholders in a hurry to get a return on their investments, there may not be any incentive to make a transaction now.

SPAC rejectors: Axios, Penske

Axios, the digital news site that pulled out of negotiations to be acquired by Axel Springer in July, and Penske Media Group, which owns publications such as “Variety,” “Rolling Stone” and “Hollywood Reporter,” are making part of the companies that are not suing PSPC, according to people familiar with the matter.

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

“We have not pursued or maintained such discussions, as we believe this is a short-term game to provide liquidity to opportunistic / greedy investors or start-ups that cannot go public through a traditional IPO process, ”said a spokesperson for Penske. “We remain focused on long-term shareholder value, not the latest investor fad.”

An important piece of the puzzle for digital media will be the stock performance of BuzzFeed, Forbes, and any other digital media company that is moving forward with a PSPC merger in the coming months. If stocks collapse early in trading, other digital media companies may be reluctant to take their stock in exchange for a deal. They will also be more careful about pursuing their own PSPC.

If skepticism about PSPCs grows within the industry, the grand plan to consolidate and survive as publicly traded entities could collapse. January’s SPAC Pax Romana could look a lot like the Roman Empire.

WATCH: Buzzfeed CEO goes public via SPAC merger

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