During the venture capital-funded digital media boom of the 2010s, startup founders often expressed ambitions to take over the world. In 2014, Vice Media co-founder Shane Smith boasted, “We won’t be the next CNN, ESPN or MTV. We will be 10 times this size. A year later, BuzzFeed CEO Jonah Peretti informed staff that they were building “a global, multiplatform network for information and entertainment, … something that has never existed before.” Half a decade later, those grandiose visions have faded as the two companies attempt to claim a bigger share of ad revenue in a landscape dominated by Facebook and Google.
Their risky bet? Go to the stock exchange to raise funds and pool more of their competition through a special purpose acquisition company, or SPAC, a blank check company that raises funds on an IPO, with the aim of merging with a private company to make them public. Yet BuzzFeed, Vice, Bustle Digital Group and Group Nine’s shift to SPACs, says financier Hollywood journalist, seems “like a last resort”.
The problem, according to this source, is that private financing that could support major acquisitions seems to be drying up. Venture capital funds funded the initial growth of digital media companies, and Hollywood giants like Comcast and Disney also invested nine figures, but these entertainment giants are now spending billions to create competitors for Netflix, and the Media venture capital funds target companies in high growth areas like gaming, augmented reality and sports betting, leaving these large previously capitalized digital media companies in limbo.
In recent years, these companies have attracted smaller competitors. In 2019, Vice – now reporting to CEO and former A&E CEO Nancy Dubuc – acquired Refinery29, Group Nine Media acquired PopSugar, and Vox Media acquired new York magazine. Then earlier this year, BuzzFeed made a deal to buy HuffPost.
BuzzFeed took the first step in SPAC, but other digital giants Group Nine Media, BDG and Vice are all engaged in similar maneuvers for an IPO through a blank check company. “Going public and expanding this very fragmented audience is a good strategic goal, in my opinion,” says Laura Martin, analyst at Needham & Co., adding that merged companies can be more “efficient” because they can reduce costly staff. – as lawyers – and allow engineers and others to better focus their resources.
Investors, meanwhile, could see an opportunity to “play the growth game” by getting involved in a stock in its “second round,” said Daniel Ives, managing director of equities research at Wedbush Securities. . Some early-stage investors may also use them as an exit strategy, even if they have to sell at a slight loss.
“There are a lot of companies that go through the PSPCs, [but] they don’t have the brand or name recognition. BuzzFeed is clearly a household name, especially for many institutional investors playing in the space, ”Ives said.
On June 24, BuzzFeed unveiled plans to go public through a SPAC called 890 5th Avenue Partners (named after Marvel’s Avengers headquarters), valuing the company at $ 1.5 billion and funding a deal to buy rival Complex Networks. , which boasts of its reach among the youngest. male consumers. “We really hope to build a M&A machine,” said Adam Rothstein, manager of 890 5th Avenue, unveiling the deal.
Group Nine Media (led by CEO Ben Lerer, son of former BuzzFeed Chairman Ken Lerer) takes a different but related approach, sponsoring its own PSPC. The goal is to merge Group Nine Media – owner of brands like The Dodo, NowThis and Thrillist – with the target company and bring both audiences, which will, yes, lead to more consolidation. One source indicates that one of the companies that has had talks with the Nine SPAC Group is Vice Media, which is pursuing its own SPAC merger (Information reported that Vice is in “advanced talks” with another PSPC, 7GC & Co Holdings, and a source close to Vice said that “the funding process is still ongoing and we have had positive conversations with various investors. “)
Yet the PSPC mergers give these companies “a surprising lifeline that didn’t exist a year ago,” notes Ellie Bamford, global head of media and connections at consultancy R / GA. “The pandemic had caused a drop of more than 30% in their advertising revenue. It’s important to remember that just 18 months ago the digital media industry looked pretty bleak, ”Bamford adds. “There were massive layoffs and pay cuts across the board, and that was after many years of fighting for life against Facebook and Google, who sucked all the air out of the room and grabbed all the money. advertising revenue. “
And PSPCs can deliver speed that a traditional IPO can’t quite match, a critical factor given the rapid transformation of digital media. “This year we will be able to go public, strengthen our balance sheet, buy complex networks, all within an accelerated timeframe due to the PSPC transaction, which really positions us to be the consolidator in the media space,” said Peretti . June 24 after the announcement of the PSPC deal, adding that the pandemic had canceled plans for an IPO in 2020.
But BuzzFeed will have to face its digital competition in these new consolidation wars, which all seek their own capital, with potentially overlapping merger goals. “There is an arms race for this sector of the market. And there is massive spending on digital content, ”says Ives. “When you look at BuzzFeed, as well as a lot of its competition, it’s a first-come advantage. “
A version of this story appeared in the June 30 issue of The Hollywood Reporter magazine. Click here to subscribe.