Shrinking M&A Appetite Spells Bad News for Digital Media 

Shrinking M& Appetite Spells Bad News
Illustration: VIP+; Adobe Stock

M&A activity both globally and in the U.S. went gangbusters in 2021. Not only was the economy in major recovery mode following the COVID-19 recession, but booming SPAC hype in the first half sent global M&A deal value for the year close to $6 trillion.  

But while M&A fever hasn’t completely cooled off in 2022, deteriorating economic conditions, including stubbornly high inflation, has created a less than favorable environment for M&A activity this year.

The media industry also rode the M&A wave in 2021, and transaction value for the year totaled a whopping $148.5 billion — the highest level in more than a decade, according to S&P Global Market Intelligence.

However, the pace of media M&A in 2022 so far this year is slower than last year, and transaction values are down significantly. By this time last year, media M&A transaction volume reached $143 billion compared with just $18 billion so far this year. Excluding 2020, that is the lowest total going back to 2013. With just three months left in 2022, it is hard to see this year's media M&A activity surpassing last year.

That spells bad news for the media companies that were relying on either consolidation or a SPAC IPO to help fuel growth amid slowing economic conditions and swelling competition. Last year’s strong appetite for M&A and SPACs was a much needed relief for media companies looking for exit strategies.

Buzzfeed took advantage of the strong market conditions and seized the opportunity to IPO via SPAC and debuted on the public market on Dec. 6, 2021. Many were looking to Buzzfeed’s post-IPO performance for guidance on whether to pursue IPOs of their own.  

Buzzfeed stock opened at $10.95 per share on Dec. 6 and sank 11% on its first trading day. Since its debut, the stock has plunged more than 86%, while the S&P 500 fell 16% during the same time period. Unfortunately for Buzzfeed, not only did market conditions worsen in 2022, but investors weren’t very interested in pure-play digital media companies with mounting losses. Buzzfeed stock currently sits at $1.50 per share and is near all-time lows.  

On top of that, the once voracious appetite for SPACs also waned this year. According to financial analytics platform Dealogic, there were 613 U.S. listed SPAC IPOs in 2021 and 248 in 2020. So far in 2022, there have only been 74. After attempting its own SPAC IPO, Forbes pulled its IPO plans in early August and is now exploring a sale for roughly $630 million, according to reports.

On the flipside, many digital media companies also opted for traditional mergers to achieve their goals of scaling business without the risks of a SPAC IPO. Some of the bigger deals last year included Dow Jones’ purchase of Investor’s Business Daily and Vox Media’s acquisition of Group Nine. While it’s difficult to state whether the traditional merger route was the more successful option, the hesitancy in the market to even pursue that route lately is the more troubling factor in the M&A slowdown. 

Many digital media companies rely heavily on advertising to fuel top-line growth. Thus, the economic downturn causes much more pain than initially realized. Competition for digital media companies isn’t coming just from other digital media companies, it’s also coming from the Big Tech giants that run massive digital advertising businesses.

Amid the current economic backdrop, even the largest digital ad players, such as Google, Meta and Amazon, have stated softness in their ad businesses. If the bigger fish are struggling, the smaller fish are struggling even more.  

The pressure is coming from all sides, and that is why the likes of Vox, Forbes, The Athletic and a slew of others were hoping to scale and diversify their businesses with M&A.  Without the optimal market conditions for consolidation, losses will continue to mount and eventually force additional cost-cutting measures, such as headcount reduction. And if these circumstances persist for a longer than anticipated time, some digital publishers just may not survive.