Can SPACs Keep Digital Publishers From Going to Pieces?

Cheyne Gateley/VIP

The nonstop SPAC news since January likely has made it easy for some to simply start glossing over headlines featuring the four-letter acronym. 

After all, there have been 291 SPAC IPOs in 2021 through March 24, a figure that already tops the 248 SPAC IPOs that occurred during the entirety of 2020, per Dealogic.  

But stay in the averse-to-SPAC-in-the-news camp for too long, and you’ll miss out on how blank-check companies (read our SPAC explainer) are gaining serious traction among a particular group of businesses: digital publishers. 

Just observe the following that were reported in March alone: 

  • BuzzFeed in talks to merge with SPAC 890 5th Avenue Partners Inc, per Bloomberg (March 10)  
  • Axios and The Athletic holding preliminary talks to merge in a plan that could see the combined company go public via SPAC, according to WSJ (March 26) 
  • Vice Media in advanced talks to merge with SPAC 7GC, per The Information (March 31) 

These announcements may not be particularly surprising to those who remember when CNBC in late January reported that Bustle, Vice, Vox, Buzzfeed and Group Nine recently held talks about going public via SPAC in 2021. Group Nine at the end of 2020 formed its own SPAC (read our analysis of that). 

Your first instinct might be to take all this digital media SPAC news as a sign of a burgeoning sector. But in reality, it might make more sense to interpret at least some of these recent headlines as evidence of companies simply having their backs against a wall. 

Take BuzzFeed. The Jonah Peretti-led digital pub weathered the pandemic relatively well and ended 2020 profitably. It also reduced costs by as much as $80 million between 2018 and 2020, per WSJ.   

Still, Huffpost (acquired by BuzzFeed last fall) lost $20 million in 2020, and Peretti recently said, “We don’t have the resources to support another two years of losses.” Moreover, 2020 BuzzFeed revenue was expected to significantly drop year-over-year, the WSJ reported in October.  

Peretti has been talking about merging for scale for years, which should come as no surprise given the $1.7B valuation he’s trying to live up to as the duopoly continues to account for the majority of U.S. digital ad spend, eMarketer forecasts.  

Meanwhile, Vice Media has been on a turnaround mission since former A&E exec Nancy Dubuc took the reins from Shane Smith in 2018. Dubuc has made strides in improving company culture and management diversity and reducing losses (which have dropped 80% from 2018 to 2020, per the Information). 

Still, Vice’s revenue growth has been stagnant, with the company’s total 2020 revenue dropping about 4% year-over-year. And it was already struggling to grow revenue prior to the pandemic, as evidenced by things like Disney’s $510 million reported loss on the company and the $250 million in debt it raised by investors like George Soros.  

It’s no wonder that, prior to the 7GC news, The Information reported that a SPAC made Vice an offer that valued it at 56% lower than its peak $5.7 billion valuation 2017. Merging with 890 5th Avenue Partners would reportedly value BuzzFeed slightly below its $1.7 billion valuation.  

But while taking a valuation cut is painful, the relatively quick path to raising funds the SPAC route offers still makes blank-check companies an attractive growth strategy compared with just waiting until the private merger opportunity presents itself, which might come at the expense of missing out on the SPAC investment hype

The Athletic and Axios are in a bit of a different boat than BuzzFeed and Vice, surely being the smaller two companies of the four. (Per WSJ, Axios generated $60M+ revenue in 2020; this figure was $80M for The Athletic.)  

But like BuzzFeed and Vice, The Athletic and Axios are under pressure to make returns for their investors, which have valued the former at $500 million and the latter at $200 million

Broad strokes, it’s a much more compelling option for an advertiser to be able to buy inventory on some super-entity like a merged Group Nine-BuzzFeed conglomerate than it is to spend on several smaller separate publishers to reach the same number of readers.  

The option to compete and grow on their own is always there, but scale will become even more important in the years ahead as digital media further consolidates and further disadvantages leaner publishing operations.