Forbes SPAC Deal: Entering the Media Liquidity Market

Recent Developments in Media Acquisitions and Public Offerings

The past week has been remarkably active concerning financial activity within the media landscape.

An event rarely encountered, news surfaced this week regarding Axel Springer’s acquisition of the U.S. political journalism organization, POLITICO. While anticipated, the substantial purchase price – approximately $1 billion – has generated considerable discussion.

We also participated in a podcast discussion to analyze this significant development.

Forbes to Go Public via SPAC

Furthermore, Forbes announced its intention to become a publicly traded company through a Special Purpose Acquisition Company (SPAC).

This move by the business publication mirrors BuzzFeed’s earlier decision to enter the public markets utilizing a blank-check company.

Could this signal a period of heightened media liquidity this summer?

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It’s also important to remember that TechCrunch is currently undergoing a sale to a private equity firm.

A nod to the Verizon financial team for successfully divesting TechCrunch while simultaneously reducing Verizon’s debt.

Analyzing the Forbes SPAC Deck

Let's quickly examine the details presented in Forbes’ SPAC deck this morning.

For comparative analysis, our previous notes on BuzzFeed’s SPAC are available here.

This review will be straightforward and informative – ideal for a Friday morning update. Let’s delve into the data!

Valuation of the Merger

Forbes Global Media Holdings is set to combine with Magnum Opus Acquisition Limited, a special purpose acquisition company (SPAC). The anticipated completion of this transaction is projected for either the fourth quarter of 2021 or the first quarter of 2022, according to Forbes’ estimations.

The financial scope of this agreement is relatively contained when contrasted with other recent SPAC mergers. Forbes indicates that the implied pro forma enterprise value will be $630 million, excluding tax advantages, following the deal’s finalization.

Approximately $600 million in gross revenue will originate from Magnum Opus’s capital reserves, supplemented by an additional $400 million secured through a private placement of ordinary shares in the newly formed company, as detailed by Forbes.

Upon the deal's conclusion, the company’s equity valuation is calculated to be $830 million. This figure is subject to adjustments based on potential redemptions prior to the merger’s completion.

The disparity between the substantial capital infusion and the comparatively modest final valuation of the publicly traded Forbes entity stems from approximately $440 million in secondary transactions benefiting current Forbes shareholders.

For a consolidated overview, the Forbes investor deck is presented below:

A key question arises: does the $830 million valuation represent a justifiable price? A thorough examination of Forbes’ financial performance is necessary to determine this.

Analyzing Forbes’ Performance

To assess the fairness of the valuation, a detailed review of Forbes’ recent financial results is crucial. Key performance indicators and revenue streams must be carefully considered.

Understanding the company’s market position and growth potential is also essential in evaluating whether the $830 million price tag is appropriate. This involves analyzing its competitive landscape and future prospects.

The Evolution of Forbes: From Print to Digital

Forbes is often perceived as either a traditional magazine or a contemporary website, but its identity is far more multifaceted. The company embodies both of these aspects, alongside a diverse range of other ventures. A key presentation slide illustrates the composition of its product portfolio.

The core media operations of Forbes, while significant, represent only a portion of its overall business. Other initiatives, brand licensing, and the broadly defined “consumer” segment are also substantial contributors to the company’s revenue stream.

Historical and Projected Performance

Examining the historical performance and future projections reveals a nuanced picture of Forbes’ revenue mix.

The media segment currently constitutes Forbes’ largest revenue source, however, it is projected to be its slowest-growing area. Brand extensions, the second-largest revenue category, are anticipated to expand at a considerably faster rate, albeit from a smaller starting point. Consumer revenues are expected to demonstrate the most rapid growth, originating from the smallest current base.

It’s typical for smaller, newer revenue streams to exhibit faster growth than larger, established ones. In Forbes’ case, these growth areas represent the entirety of its future potential. The company does not foresee its media business exceeding its 2019 revenue levels in 2022.

In essence, the media division can be viewed as Forbes’ past, or alternatively, the foundation upon which its future is being built. While media revenue is expected to recover from COVID-19 related declines, the growth will be driven by the businesses that have flourished as a result of Forbes’ media presence.

Defining Brand Extensions and Consumer Revenue

The initial image clarifies that brand extensions encompass income from conferences and other revenue streams derived from media activities. The “consumer” category also includes some media revenue, but it is segregated to independently track its growth. Whether this is a genuine distinction or an accounting strategy is open to interpretation.

Brand extension activities also involve licensing the Forbes brand to third parties for use in publications. Furthermore, this segment includes e-commerce ventures like Forbes Shopping, a marketplace, and the Q.ai investing application. Consumer efforts encompass subscriptions and other offerings, including “exclusive invitations” and “membership recognition.”

Revenue Breakdown in Detail

The following chart provides a detailed breakdown of these revenue streams:

The chart on the left illustrates the impact of the COVID-19 pandemic on Forbes, and the diminishing significance of its magazine business. The subsequent chart suggests that contribution margins will remain relatively stable as revenue increases. The final chart indicates a commitment to improving adjusted profitability, aiming for 22% pro forma EBITDA margins next year.

Looking ahead, Forbes anticipates its media business will decrease from 65% to 45% of total revenue between 2020 and 2022. Conversely, consumer and brand extension revenue is projected to increase from 35% to 55% of total revenues. The company also forecasts long-term EBITDA margins exceeding 25%.

Overall Growth and Valuation

While Forbes’ overall growth rate of 14% (compounded from its COVID-19 lows) may not be exceptionally rapid, the company expects improved profitability in 2022.

Forbes values its 2020 revenue of $183 million at $830 million in equity terms, representing a multiple of 4.5x trailing revenue. This revenue multiple is expected to decrease to approximately 3.9x this year. While not excessively high, it isn’t particularly low either. This is because revenue from sources outside of the magazine business is only projected to grow 24% from 2019 to 2022, a relatively modest increase.

Furthermore, the conversion of EBITDA to net income remains uncertain, making a complete assessment of Forbes’ profitability challenging.

The SPAC Deal and Future Outlook

The Forbes SPAC deal appears logical, providing liquidity to existing shareholders, injecting capital into the company, and facilitating a public listing in a favorable market, despite recent challenges in the SPAC sector. While not the most groundbreaking debut, it demonstrates the potential to successfully transition a magazine business into the digital age while maintaining revenue growth. This achievement is noteworthy.