Update (1100ET): At long last, Buzzfeed is finally going public, a crowning career accomplishment for founder and CEO Jonah Peretti.
As we reported earlier, Peretti confirmed on Thursday morning that Buzzfeed had agreed to merge with the obscure 890 5th Avenue Partners (yes, it's named after the fictional headquarters of the Avengers), which raised $250 million in an IPO earlier this year.
The SPAC is led by CEO Emiliano Calemzuk and executive chairman Adam Rothstein, and counts NBCUniversal ad sale chief Linda YAccarino, former Buzzfeed President Greg Coleman, Time Warner Comms Chief Gary Ginsberg and former ESPN executive John Kosner among its advisers, according to the Hollywood Reporter.
But how is the combined firm getting that $1.5 billion valuation (roughly 1/5th of the NY Times Company's current market valuation)?
The SPAC has $288MM in cash, and Buzzfeed has come up with another $150MM in convertible note financing.
Much of that money will go to the acquisition of Complex, another flailing media company that, according to the deal, is valued at $300MM. Owners Heart and Verizn will walk away with $200MM in cash and $100MM in stock, a generous exit considering the number of corporations who have written down similar investments in digital media brands.
According to an investor presentation, BuzzFeed had revenue of $421 million in 2020, and expects to have $521 million in 2021. However, in 2020, Buzzfeed's net income was just $4MM - and that's after all the accounting tricks.
Last year, Buzzfeed bought out the Huffington Post before laying off one-third of its staff. After the deal and the Complex Networks buyout, Buzzfeed will be home to a handful of brands, including the namesake Buzzfeed website, HuffPo, the Tasty series of cooking videos, Complex, and its digital studio First We Feast, which produces the popular YouTube series "Hot Ones".
The deal won't close until Q4. Afterwards, the combined company will trade under the ticker "BZFD".
Buzzfeed likely won't be the last big digital media brand to take a SPAC deal. There have been rumors about Vice, Axios and other digital media brands striking deals with desperate SPAC companies working on a two-year clock to close a deal - or risk giving up that generous promote.
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After years of speculation about a public offering, Buzzfeed, the digital media company that revealed recently that much of its most popular content is produced by unpaid teenagers, is nearing a deal to go public via SPAC.
The deal, reported Wednesday evening by WSJ, will give the company enough of a bankroll to buy up other rival media firms, including Complex, a fashion- and media-based outlet. Buzzfeed hopes that it will come out on top in a wave of consolidation that will see it buy up several of its main rivals.
The SPAC deal is being struck by Buzzfeed CEO and founder Jonah Peretti and the company 890 5th Avenue Partners, a blank-check company named after the headquarters of Marvel’s Avengers superheroes and founded by investor Adam Rothstein, and it may be officially announced as early as this week.
Buzzfeed and a handful of digital media upstarts managed to raise hundreds of millions of dollars in venture capital via a series of funding rounds back in 2015 and 2016. Buzzfeed achieved a peak valuation of $1.5 billion after receiving $200MM from NBCUniversal. But by now, that money has probably mostly run out.
In the intervening years, investors have been forced to write down the value of some of these investments (like Disney writing down the entirety of its investment in Vice) as the media firms have mostly underperformed. Some, like Vox, have achieved modest success via scale by buying up rival brands left and right. But Buzzfeed's attempts at consolidation haven't worked out so well: the firm recently laid off a huge chunk of the HuffPo staffers who migrated to Buzzfeed following the deal.
Financial pressure has intensified for Buzzfeed, forcing it to trawl around for potential suitors. But even in the SPAC boom, which has slowed since the start of the new year, it appears many are approaching digital media with great trepidation.
In 2017, BuzzFeed missed its revenue target of about $350MM by some 15% to 20% and laid off about 100 employees in advertising sales and business operations. The company’s finances improved over the years as Peretti managed to keep expenses down. In 2020, BuzzFeed turned a profit for the first time since 2014, in part by cutting about $30MM in expenses.
Buzzfeed isn't the only digital media player pursuing a SPAC. Whether this will be enough to win over investors remains to be seen. The biggest obstacle for Buzzfeed is that the digital advertising business is controlled by Google, Facebook and Amazon - the "Big three" - and independent media businesses have found it difficult to compete without selling paid subscriptions to subsidize their operations. Will Buzzfeed, a pioneer of the 'free-to-all' digital model, finally be forced to experiment with a paywall? And more importantly, would anybody actually pay?