Understanding the media company SPAC push

Sorry for all the SPAC coverage today, but a host of richly valued private companies that have an ocean of venture capital funds under their belt are going public. We have to pay attention.

The market is more risk-on than you’ve been led to believe; SPACs are still hunting for deals.

Earlier today, TechCrunch covered the brand-new Better.com SPAC deal that will take the digital mortgage provider public. But it was hardly the only company working to combine with a blank-check company that demanded our attention today. There are a few media companies looking to do the same: Vice and the previously named Bustle.

It’s notable that we’re discussing SPAC deals for media companies at all because a few days ago, CNBC reported that such efforts had come into doubt, noting that the recent SPAC slowdown had led to “digital media companies [reassessing] their timeline on going public.”

Writing this to you as someone currently being spat out from a phone company into the hands of private equity, I was not terribly surprised that companies in my business were not enjoying the warmest of public receptions. After all, we’d seen some software companies delay their IPOs in recent weeks — though those efforts are now back on, largely — so to see the ever-less-attractive media concerns of the unicorn realm hold off on their offerings simply didn’t shock. Especially as SPAC stocks have taken a hammering.

And then, today.

Earlier this morning, Axios reported that Bustle, now BDG, still intends to pursue a SPAC-led public debut later this year. Per our friends over at Big Bullet Point, Bustle is not disputing reports that it is targeting a valuation of around $600 million. Sure, that’s the value of a single, late-stage fintech investing round, but for the media world, it’s not an exit to mock.

And yesterday, The Wall Street Journal reported that Vice Media Group is also moving ahead with a SPAC-led combination with 7GC & Co Holdings, a blank-check company that priced back in December 2020.

What’s going on? A few things, we reckon: The market is more risk-on than you’ve been led to believe; SPACs are still hunting for deals as their countdown timers tick; record asset prices more generally; and, finally, a booming advertising market coupled with rising belief in consumer-media subscriptions. For an industry that has been a reported venture-backed letdown in recent years — see this from 2020, this from 2019, 2018 and so on — it could be just about as good a moment as any to get out the door.

Let’s talk about it.

Taking media public

There are actually three media companies that could be going public via a SPAC, with BuzzFeed part of the crew alongside BDG and Vice, again per CNBC.

We’ll dig into each company’s known venture capital and revenue results shortly. But first, the market. Why are we still seeing media companies pursue SPAC-led debuts now? Here’s a breakdown of our market view:

  • There’s greater risk appetite than you thought: We’re seeing some money rotate out of some tech stocks into other sectors, leading to compressing multiples for some software companies. But that doesn’t mean that tech stocks, and other investments that have enjoyed a speculative boom in the last year, aren’t still attractively priced. Everything is super valuable in 2021. It’s an everything bubble. From lumber to digital horses, to fucking baseball cards and all the way back to the S&P 500. Given this general appreciation for high prices, a risk-on stance, it’s not a shock that media companies are trying to make hay while the markets are silly.
  • SPACs are hungry: There have been way more SPACs produced than combinations consummated. This means that there are a host of vehicles out there looking for a deal. At some point, many SPACs will have to realize that the chance of finding a Snowflake in the rough is zero — and that other options are more palatable to a dispiriting and dishonorable dissolution. (Cases in point: Scooter unicorn Bird is going public via a SPAC, as is an autonomous trucking company announced today. Ha!)
  • Media economics are improving(?): A number of public companies that make money off advertising just kicked the living shit out of Q1 2021. YouTube’s pre-roll business? Flying. Amazon’s ad efforts? Soaring. Facebook’s own ad incomes? Super hot. Simply put, digital ads are a big damn deal at the moment, helping media companies dig out of a financial coma brought on by COVID. Ask your friend who sells ads. They are busy at the moment. That’s great news for media companies.
  • Subscriptions are here to stay: Finally, media subscriptions are here to stay. By now it’s clear that The New York Times and a few other papers are going to manage to stay huge on the back of recurring consumer payments. But even smaller sites are in the paywall game these days, to pretty good effect. Insider, TechCrunch and others have found material audiences that are willing to fork over cash. For investors looking for a growth story, the media companies in question could spin quite the tale. Investors love that shit. (See also: Substack’s venture capital history.)

And there’s the fact that a lot of capital went into our three companies. Funds that want an exit. And if now is as good as it is going to get, then it is time to go. Find a SPAC and launch, pronto.

How much capital have the three media companies raised? According to PitchBook data, as best we know BuzzFeed has raised around $550 million in private capital, including $50 million in debt. And its most recent private valuation that we know was $1.7 billion, set back in November 2016. The company raised equity capital as part of a deal with my parent company Verizon Media Group — soon: Yahoo-Apollo — when BuzzFeed took the Huffington Post under its wings. It rapidly fired a chunk of the staff.

Regardless, BuzzFeed was expected to break even last year, despite revenue declines thanks to the pandemic. Throw in some growth trends and, provided that BuzzFeed News’ parent company has managed to keep its costs under control, it could paint an attractive post-COVID narrative.

Turning to BDG, PitchBook has just over $100 million written down in terms of known, raised funds. That includes around $20 million in debt. Bustle was last valued at $350 million after its February 2019 round of capital.

Axios reports that “the company will bring in over $100 million of revenue” in 2021, and that its CEO claims that his company “is profitable.” With a target valuation of no less than $600 million, the company’s SPAC path doesn’t seem too complicated.

Then there’s Vice. PitchBook has around $1.72 billion in known raised capital for Vice. Around a quarter billion of that is debt, part of the reason why it may want to go public. Back in 2017, Vice was valued at $5.7 billion, PitchBook estimates. The Wall Street Journal has notes on how well Vice is doing:

7GC & Co Holdings will sell potential investors on the promise of growth and profit in its pitch, one of the people said. Vice generated about $600 million in revenue in 2020 and was profitable in the fourth quarter, the person said, though it wasn’t profitable for the full year. The company projects that it will generate about $680 million of revenue this year and reach $1 billion by the end of 2023, the person said.

The growth point from 7GC & Co Holdings mirrors our own take. The Journal also reports that Vice could be worth around $3 billion when it completes a SPAC-led flotation. That’s far below its final, known private valuation but still a huge number.

All told, north of $2 billion has been put into these three companies. SPACs are desperate and asset prices are high as media recovers some and digital ad sales spike. If not now, when?