Digital media companies disagree about the future as the SPAC market falters

The digital media industry has reached a strategic crossroads.

Earlier this year, Special Purpose Acquisition Vehicles (SPACs) appeared to be the expected savior of digital media companies. BuzzFeed, Vice, Bustle Digital Group and others with venture capital support had a plan to amortize investors with listed shares. Some of the major players would go public publicly in the first place, and these companies would roll up smaller pairs, paying fairly to get the offers. The end result would be a handful of larger digital media entities with a global scale large enough to survive.

But when the Securities and Exchange Commission cracked down on SPAC accounting practices in April, the booming market nearly stagnated. 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, the issue has dropped to an average of less than 10 a month.

Although the broadcast has plummeted, the remaining SPACs are aggressively looking for deals. July recorded the second-highest month of SPAC transactions ever recorded.

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

This confusing market, with many SPACs still looking for deals but very few new SPACs being formed, and a clear skepticism that permeates transactions, has caused some digital media companies to fall asleep in the SPAC, while d others reject blank check companies as mere fashion.

There are three broad fields among digital media executives right now: SPAC believers, SPAC considerators, and those who reject SPAC.

The first group continues to believe that SPACs are the best way forward. Digital media entities offer steady growth, reliable revenue and are not as fantastic with projections as some of the companies that have caused the SPAC recession, said Bryan Goldberg, CEO of Bustle Digital Group.

“Broadly speaking, the SPAC craze has gone away, 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 considers a bargain can be an attractive multiple for CEOs.”

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

Last week, Forbes announced that it had reached an agreement to be made public through SPAC after reaching an agreement with an implicit valuation of $ 630 million with the blank check entity Magnum Opus Acquisition. On the same day that Forbes announced its deal, Axel Springer agreed to pay about $ 1 billion for Politico, another digital media company.

While this $ 1 billion outflow may seem routine to many large institutional investors, it is significant for the founders of digital media. Very few companies in the industry have sold at a multiple income of up to 5 times, Goldberg noted. Politico generates about $ 200 million in annual revenue. This is a bullish sign for an industry that has come back to life after the pandemic quarantine in 2020, briefly rocked advertising revenue.

BuzzFeed has also found a SPAC partner, although, like Forbes, it has yet to start publicly trading. BuzzFeed in June agreed to merge with 890 Fifth Avenue Partners at a valuation of $ 1.5 billion. CEO Jonah Peretti has publicly said he expects BuzzFeed to be an aggressive buyer of other digital media companies, providing another outlet for founders who may feel uncomfortable chasing a SPAC.

Group Nine, owner of digital brands such as NowThis, Thrillist, The Dodo and PopSugar, has already launched a SPAC that it will use to make itself public, but only after finding a merger partner or partners to increase the size of the company.

The Nine Group’s SPAC, which went public in January, has a layer of added complexity because it consists of merging a target with an existing company, rather than doing so publicly through an empty ship. The Nine group has spent years exploring goals and holding talks with dozens of companies, according to people who know the subject. The meeting of the right cultural and financial adequacy, with the CEOs willing to work together, has bogged down negotiations with several companies, according to people. However, the new group hopes to announce an agreement soon, according to someone familiar with the matter. A spokeswoman for the New Group declined to comment.

Vice Media Group’s efforts to make itself public through SPAC have stalled as investors called PIPE (private equity investment) have opposed the valuation of the company, according to people who were familiar. with the question. Although Vice has not yet given up hope at a SPAC, it currently does not have a specific timetable for making it public, people said. A deputy spokesman declined to comment.

Vox Media has also held talks with several different SPACs, but has not made the decision to reach an agreement, according to people familiar with the company’s thinking. Vox is profitable and can choose to give up a SPAC for some of the same reasons to move forward: business is good and constantly improving. For private companies that do not need public capital and do not have advance shareholders eager to get a return on their investments, there may be no motivation to make a transaction now.

Axios, the digital news site that emerged from the talks that Axel Springer acquired in July, and Penske Media Group, which owns publications such as “Variety,” “Rolling Stone” and “Hollywood Reporter,” are some of the companies which are not t chase SPAC, according to people familiar with the subject.

Penske has been approached by eight different SPACs, but has no interest in reaching an agreement given the current market, according to a company spokesman.

“We have not held or entertained such discussions, as we believe it is a short-term game to provide liquidity to opportunistic / greedy investors or start-ups that cannot be made public through a traditional IPO process,” he said. say a Penske spokesman. “We remain focused on long-term shareholder value, not the latest investor fashion.”

An important piece of the puzzle for digital media will be the stock performance of BuzzFeed, Forbes and any other digital media company moving forward with a SPAC merger in the coming months. If the shares collapse during the first operations, other digital media companies may be reluctant to take their assets in exchange for a deal. They will also be more cautious when pursuing their own SPAC.

If SPAC skepticism grows among the industry, the grand plan to consolidate and survive as a listed entity can collapse. The January Pax Romana SPAC may end up similar to the Roman Empire.

SEE: The CEO of Buzzfeed goes public through a SPAC merger