SPACs and Media Companies: A Deep Dive

Recent Surge in SPAC Deals Involving Privately Held Companies

There has been considerable activity surrounding Special Purpose Acquisition Companies (SPACs) recently, with numerous private companies backed by substantial venture capital funds opting to go public.

Today, TechCrunch highlighted the new agreement for Better.com to become a publicly traded entity via a SPAC deal. However, Better.com wasn't the sole company pursuing a merger with a blank-check company that garnered attention.

Media Companies Explore SPAC Options

Several media organizations are also considering similar paths, including Vice and Bustle.

It's worth noting that discussions regarding SPAC deals for media companies are occurring despite recent reports from CNBC suggesting doubts about their viability.

The slowdown in the SPAC market had prompted “digital media companies [to reassess] their timeline on going public.”

Given my own experience with a company transitioning from a telecommunications firm into private equity ownership, I wasn't surprised by the lukewarm public response to companies in this sector.

Software companies had also postponed their Initial Public Offerings (IPOs) in recent weeks, though many are now back on track.

Bustle and Vice Advance with SPAC Plans

Earlier today, Axios reported that Bustle, now operating as BDG, remains committed to a SPAC-led public offering later this year.

Bustle is reportedly aiming for a valuation of approximately $600 million, as indicated by sources at Big Bullet Point.

While this figure represents a single, late-stage fintech investment round, it's a noteworthy exit valuation within the media landscape.

Furthermore, The Wall Street Journal revealed yesterday that Vice Media Group is progressing with a SPAC merger with 7GC & Co Holdings, a blank-check company that initially priced in December 2020.

Factors Driving the Trend

Several factors appear to be contributing to this trend:

• A more risk-tolerant market than previously indicated.
• SPACs actively seeking deals before their deadlines.
• Generally elevated asset prices.
• A robust advertising market combined with increasing confidence in consumer-media subscriptions.

For an industry often cited as a venture-backed disappointment in recent years, this could represent an opportune moment to pursue public offerings.

This is a significant development for both the SPAC market and the media industry.

The Potential Public Debut of Media Companies

Currently, three media organizations – BuzzFeed, BDG, and Vice – are exploring the possibility of becoming publicly traded companies through Special Purpose Acquisition Companies (SPACs), as reported by CNBC.

A detailed examination of each company’s venture capital funding and revenue figures will follow. However, it’s crucial to first analyze the current market conditions. Why are media companies still considering SPAC-led initial public offerings at this time? Here’s an assessment of the prevailing market dynamics:

• Increased Risk Tolerance: We are observing a shift in investment strategies, with some capital moving away from established tech stocks and into other sectors. This is resulting in lower valuation multiples for certain software companies. Nevertheless, technology stocks and other investments that benefited from recent speculative growth remain attractively priced. Overall asset values are elevated in 2021, creating an expansive market environment. From commodities like lumber to collectibles like baseball cards, and even the broader S&P 500, prices are high. This widespread appreciation for value encourages a risk-on approach, prompting media companies to capitalize on favorable market conditions.
• SPAC Demand: The number of SPACs currently available exceeds the number of completed mergers. Consequently, numerous investment vehicles are actively seeking suitable acquisition targets. Eventually, many SPACs will recognize the limited likelihood of discovering a high-growth company like Snowflake and may opt for more pragmatic solutions, even if it means a less desirable outcome. (For example, scooter company Bird and an autonomous trucking firm are both pursuing public listings via SPACs.)
• Improving Media Economics: Several publicly traded companies reliant on advertising revenue experienced exceptionally strong performance in the first quarter of 2021. YouTube’s pre-roll advertising business is thriving. Amazon’s advertising initiatives are experiencing significant growth. Facebook’s advertising income remains robust. Digital advertising is currently a substantial revenue driver for media companies, aiding their recovery from the financial challenges posed by the COVID-19 pandemic. Consult with advertising professionals; they are currently experiencing high demand. This is a positive development for the media industry.
• The Persistence of Subscriptions: Media subscriptions are becoming a permanent fixture in the industry. The New York Times and other publications have demonstrated their ability to sustain growth through recurring consumer payments. Even smaller online platforms are successfully implementing paywalls, achieving positive results. Insider and TechCrunch, among others, have attracted substantial audiences willing to pay for access. For investors seeking growth potential, these media companies present a compelling investment narrative. Investors respond favorably to such prospects. (Consider the venture capital funding history of Substack.)

Furthermore, a significant amount of capital has been invested in these three companies, creating a need for investors to realize returns. Given the current market conditions, the timing may be optimal for these companies to pursue public listings through SPACs.

What is the total capital raised by these three media companies? According to PitchBook data, BuzzFeed has secured approximately $550 million in private funding, including $50 million in debt. Its most recent known private valuation was $1.7 billion, established in November 2016. The company received equity investment as part of a transaction involving my parent company, Verizon Media Group – soon to be Yahoo-Apollo – when BuzzFeed acquired The Huffington Post. This acquisition was followed by workforce reductions.

BuzzFeed was projected to achieve break-even profitability last year, despite revenue declines caused by the pandemic. Coupled with emerging growth trends and effective cost management, BuzzFeed could present a promising post-COVID investment opportunity.

Regarding BDG, PitchBook records over $100 million in known funding, including approximately $20 million in debt. Bustle’s last valuation was $350 million following its February 2019 funding round.

Axios reports that the company anticipates exceeding $100 million in revenue in 2021, with its CEO asserting that the company is profitable. With a target valuation of at least $600 million, the company’s SPAC route appears straightforward.

Vice has attracted around $1.72 billion in known funding, according to PitchBook. Approximately $250 million of this total is debt, contributing to its consideration of a public offering. In 2017, Vice was valued at $5.7 billion, as estimated by PitchBook. The Wall Street Journal provides insights into Vice’s current performance:

The growth projections from 7GC & Co Holdings align with our own assessment. The Journal also indicates that Vice could be valued around $3 billion upon completing a SPAC-led flotation. While this is below its previous private valuation, it still represents a substantial figure.

In total, over $2 billion has been invested in these three companies. SPACs are actively seeking deals, and asset prices are high as the media sector shows signs of recovery and digital advertising revenue increases. The current environment presents a favorable opportunity for these companies to go public.