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Digital media companies pump the brakes on their rush to go public as SPAC market cools


Jonah Peretti, Founder and CEO of Buzzfeed, speaks on October 18, 2017 at the Wall Street Journal Digital Conference in Laguna Beach, California, U.S.

The Summer of Digital Media was supposed to be this year.

In the midst of a surge in special purpose acquisition companies (SPACs), companies such as Buzzfeed, Vice, Vox, Bustle, and others have set this summer as a likely date for going public.

Executives and advisors now believe that will not happen five months into the year.

According to four people familiar with the matter, a significant slowdown in SPAC issuance, caused by new accounting guidance from the Securities and Exchange Commission, has forced many digital media companies to rethink their timeline for going public.

According to three of the people who asked not to be identified because the discussions are private, Buzzfeed is still expected to find a SPAC partner later this year. However, other companies, such as Vice and Bustle, that believed there might be a path to going public on their own in the coming months have backed off, according to the people. According to people familiar with the matter, Vice has been in advanced talks to merge with 7GC & Co Holdings, but the timeline on those talks has stalled.

Nonetheless, Vice hopes to move forward with 7GC in the coming months if it can secure external funding, according to people familiar with the situation. One of the people said Vice plans to hold a road show for PIPE investment in the coming weeks to gauge interest. According to The Information, Vice’s revenue was $580 million last year, down from $604 million in 2019.

Buzzfeed and Vice representatives declined to comment.

Slowdown in SPAC

A SPAC raises capital through an initial public offering as a “blank check” company, with no specific acquisition in mind. The cash is then used by the investors to take a private company public with additional funding from institutional investors, a process known as a PIPE – private investment in public equity.

With so many SPACs entering the market earlier this year, digital media companies appeared to be assured of finding a shell company with associated additional equity. However, given the recent dramatic SPAC slowdown, PIPE investors, which include institutional investors such as Fidelity, Blackrock, and T. Rowe Price, are becoming more selective in selecting SPACs with which to invest.

This rush to quality has dampened expectations among digital media firms hoping to ride the SPAC wave to provide liquidity to long-term shareholders.

According to three of the people, Buzzfeed may be the only significant digital media company to go public this year. According to two sources, Jonah Peretti has no intention of selling Buzzfeed or relinquishing his CEO role, so he is looking for targets with founders or executives willing to collaborate while giving up operational control.

Group Nine has established a SPAC in which the digital media company, which owns PopSugar, The Dodo, and NowThis, will merge with a target of its choice. Buzzfeed may make sense as a target for the Group Nine SPAC, especially given that Group Nine CEO Ben Lerer has indicated to investors that he may be willing to step down as CEO, as reported earlier this year, but no deal is imminent, according to the people. Bloomberg reported in March that Buzzfeed was in talks with 890 5th Avenue Partners Inc., another SPAC.

There are few, if any, publicly traded companies comparable to Buzzfeed. It’s unclear whether there will be significant PIPE interest in digital media companies, which have only recently become profitable and whose projected growth rates can’t compete with industries like electric vehicles and biotech, which have spawned a slew of SPACs.

Still, if investors come to see digital media trajectories as safer, steadier bets than more fanciful, higher-growth companies, digital media may have a path forward via SPAC.

According to a person familiar with the situation, Bustle, which owns sites geared toward women such as Elite Daily, Nylon, and Romper, has spoken with several SPACs but has no plans to go public alone at the moment.

According to two of the people, Vice hopes that its diverse portfolio of media assets will persuade PIPE investors that it should be viewed more like ViacomCBS and other video-first media companies than other digital media entities.

Buyers eventually become sellers.

Several digital media companies want Buzzfeed to go public first so they can see how investors value it before deciding whether to go public or sell, according to two of the people.

However, those same companies may be confronted with a harsh reality: they are simply too small, with unremarkable growth profiles that will not pique the interest of public market investors.

As a result, according to two people familiar with the situation, some companies will become increasingly desperate to sell to Buzzfeed or Group Nine’s SPAC if they are the only buyers with publicly traded currency. Digital media companies could also merge with other peers, such as the news curation service theSkimm, but private mergers are often difficult to complete due to the lack of a public market to accurately dictate equity valuation.

Other legacy media companies may target one or two digital media companies. The Wall Street Journal reported this week that The Athletic is hoping to sell to The New York Times.

However, The Journal reported that The Athletic’s initial plan to merge with digital media company Axios and find a SPAC to take them public had fallen through.

That exemplifies the current state of affairs in digital media. January and February’s euphoria has given way to a more sober May. Venture capitalists and early-stage employees who have been waiting for an exit for years will have to wait even longer.

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