The autumn of the SPAC market is main digital media corporations to disagree on one of the best ways ahead

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The digital media industry has reached a strategic crossroads.

Earlier this year, Special Purpose Acquisition Vehicles (SPACs) appeared to be the long-awaited savior of digital media companies. BuzzFeed, Vice, Bustle Digital Group, and others with venture capital backing came up with a plan to repay investors with publicly traded stocks. Some of the biggest players would go public first, and those companies would then pool smaller competitors and pay with equity to do deals. The end result would be a handful of larger digital media companies with enough global reach to survive.

But when the Securities and Exchange Commission cracked down on SPAC’s accounting practices in April, the booming market nearly came to a standstill. In the first quarter, an average of 89 new SPACs were issued each month, according to Bespoke Investment Group. From April to the end of August, the output has dropped to an average of less than 10 per month.

While emissions have plummeted, the remaining SPACs are aggressively looking for business. July was the second highest month of SPAC transactions ever.

Still, the recent accomplishment of already-closed deals was lackluster. The prices for the total area are at their lowest level since the end of 2020, said Bespoke. This affects SPACs that have not yet found any targets. Of the 426 post-IPO SPACs that haven’t announced a deal yet, the average is trading 31 basis points below their IPO price, Bespoke said. In other words, investors expect target companies to become increasingly undesirable.

This confused market, where many SPACs are still looking for deals, but very few new SPACs are forming and there is clear skepticism about transactions, has led some digital media companies to cling to the SPAC dream while others reject the blank check companies as a mere fad.

There are currently three major camps among digital media executives: SPAC believers, SPAC deliberations, and SPAC rejecters.

SPAC believers: Buzzfeed, Forbes, Bustle, Group Nine

The first group continues to believe that SPACs are the best way to go. Digital media companies offer steady growth, reliable revenues, and are not as imaginative with forecasting as some of the companies that led to the SPAC downturn, said Bryan Goldberg, chief executive officer of Bustle Digital Group.

“The SPAC mania has largely gone sideways, but that does not apply to the digital media world,” said Goldberg. “There has been a shift from growth to value. That should help digital media founders. What Wall Street normally considers a bargain can be an attractive multiple to media CEOs.”

Bustle plans to pursue a SPAC later this year or early next year, Goldberg said.

Last week Forbes announced that it had reached an IPO via SPAC after reaching a deal with blank check firm Magnum Opus Acquisition with an implied valuation of $ 630 million. On the same day that Forbes announced its deal, Axel Springer agreed to pay about $ 1 billion for Politico, another digital media company.

While this $ 1 billion exit may seem routine for many large institutional investors, it is important to digital media founders. Very few companies in the industry have sold at multiples of 5 times revenue, Goldberg noted. Politico has annual sales of around $ 200 million. That’s an optimistic sign for an industry that has come back to life after the 2020 pandemic quarantines briefly shook ad revenue.

BuzzFeed has also already found a SPAC partner, but like Forbes, has not yet started public trading. BuzzFeed agreed to merge with 890 Fifth Avenue Partners in June for a value of $ 1.5 billion. Chief Executive Officer Jonah Peretti publicly said he anticipates BuzzFeed will be an aggressive buyer of other digital media companies – which offers another way out for founders uncomfortable pursuing a SPAC themselves.

Group Nine, which includes digital brands like NowThis, Thrillist, The Dodo, and PopSugar, has already launched a SPAC that will allow it to go public – but only after it has found one or more merger partners to grow the size of the Company to enlarge.

Ben Lerer

Olivia Michael | CNBC

Group Nine’s SPAC, which went public in January, has an added layer of complexity as it involves merging a target with an existing company rather than just going public through an empty vessel. It has taken Group Nine all year to scout targets and hold conversations with dozens of companies, according to those familiar with the matter. Finding the right cultural and financial match with CEOs willing to work together has stalled deal talks with multiple companies, people said. Still, Group Nine expects to announce a deal soon, according to someone familiar with the matter. A spokeswoman for Group Nine declined to comment.

SPAC viewer: Vice, Vox

The Vice Media Group’s efforts to go public on SPAC have stalled as so-called PIPE (Private Investment in Public Equity) investors, according to people familiar with the matter, were reluctant to value the company. While Vice hasn’t given up hope of a SPAC yet, there is currently no specific schedule for going public, people said. A deputy spokesman declined to comment.

Vox Media has also had talks with a number of different SPACs but has not settled on a deal, according to people familiar with the company’s mindset. Vox is profitable and could forego a SPAC to move forward for the same reasons: business is doing well and is constantly improving. For private companies that don’t need public capital and don’t have pushy early shareholders looking to get a return on their investments, there may be no motivation to do a deal now.

SPAC deflectors: Axios, Penske

Axios, the digital news site acquired by Axel Springer in July, and the Penske Media Group, which owns publications such as “Variety,” “Rolling Stone,” and “Hollywood Reporter,” are among the companies that don’t track SPACs, so the people familiar with the matter.

Penske has been approached by eight different SPACs, but has no interest in a transaction given the current market, according to a company spokesman.

“We have not continued or conducted such discussions as we believe it is a short-term game to provide liquidity to opportunistic / greedy investors or young companies that cannot go public through a traditional IPO,” said a Penske spokesman. “We continue to focus on long-term shareholder value, not the latest investor trends.”

A major piece of the digital media puzzle will be the stock performance of BuzzFeed, Forbes, and every other digital media company driving a SPAC merger in the coming months. If stocks go down in early trading, other digital media companies may be reluctant to take their equity in exchange for a deal. They will also be more careful about keeping track of their own SPAC.

If skepticism about SPACs in the industry grows, the grand scheme of consolidation and survival as a public company could collapse. The January SPAC Pax Romana could be very similar to that of the Roman Empire.

WATCH: Buzzfeed CEO on IPO via SPAC merger

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