Mergers and Acquisitions

Media companies look to avoid IPO risk through SPACs

Source: CNBC

Most media acronyms have a tech origin, but SPACs (Special Purpose Acquisition Companies) are all about the money. SPACs have become popular recently as they offer private media businesses a simpler route to investment finance, letting owners sidestep the risks of a traditional IPO.

  • SPACs, also known as ‘blank check companies’ have had a limited presence on the US investment scene for decades. Their popularity increased dramatically last year with the market volatility caused by the global pandemic and companies deciding to postpone their IPOs rather than risk a weak debut.
  • Around 200 SPACs went public in 2020. They raised total funding of $64 billion, almost the equivalent of the combined total value of last year’s IPOs. This year, several digital media businesses are thought to be eyeing SPACs as a way to attract new money for their investors.
What is a SPAC?
  • Special Purpose Acquisition Companies are shell companies with no commercial operations. They are set up for the exclusive purpose of raising money through an IPO to then acquire one or more operating companies.
  • SPACs are created, or sponsored, by institutional investors – private equity, hedge funds or high-profile individuals including billionaires Richard Branson and Tilman Fertitta. Investors with successful track records are crucial to the success of SPACs.
  • Critics of SPACs as an investment vehicle point out that companies looking to be acquired run the risk of being rejected by SPAC shareholders (who must approve acquisitions) and also the obvious point that investors have no idea where their money will end up.
Media SPACs 
  • BuzzFeed is looking to go public through a merger with SPAC 890 Fifth Avenue Partners. That deal then looks likely to trigger an acquisition of digital lifestyle publisher Complex Networks. The initial merger would value Buzzfeed just below its peak valuation of $1.7 billion.
  • Progress has slowed on Vice Media Group’s plans to go public through a nearly $3 billion SPAC merger, but SPAC 7GC is rumoured to be approaching institutional investors. The deal would remove Vice from ‘onerous’ private equity obligations and leave existing investors, including Disney, with 75% of the business.
  • Group Nine Media, founded in 2016, owns several leading digital properties including NowThis and PopSugar. The SPAC created by executives of Group Nine Media – Group Nine Acquisition Corp (GNAC) – IPOd at $230m in January.

The Information is reporting that media firms like Buzzfeed and Vice are likely to go public by merging with SPACs. But the site warns that unlike SPAC deals in ‘bubbly industries like electric vehicles’, media deals will bring valuations lower than those seen in the past. For example, it puts one of the offers for Vice at $2.5bn, less than half Vice’s peak valuation of $5.7 billion in 2017.

You may also like

Comments are closed.