Sat. May 28th, 2022

BuzzFeed will continue with ambitious plans to build an online media giant despite the withdrawal of almost all investors from its Spac fund as it prepares to go public.

Investors in the Spac taking BuzzFeed public have withdrawn 94 percent of their money, indicating skepticism about the media group’s prospects and underlining how far Spacs has come fell out of favor.

“The expression, ‘in the short term, the stock market is a voting machine, in the long term it’s a weighing machine,’ I think there is truth to that,” Jonah Peretti, founder of BuzzFeed, told the FT. “Digital media still has a bit of a hangover from the burst of hype five years ago. My opinion is that it should be valued more than the market is at present. ”

Spacs work like blank checks: they raise money from investors and list it on the stock market, promising to find an attractive private company to merge with. Because shareholders do not initially know which company will buy the vehicle, they can withdraw their money if they do not want to invest in the chosen target.

After raising $ 288 million from investors earlier this year, 890 Fifth Avenue Partners announced the special purpose vehicle at its merger with BuzzFeed in June. The company will eventually receive only $ 16 million from that original pot plus $ 150 million from a convertible mortgage.

“It does not change our strategy,” Peretti said. “I’m not an expert on Spacs, I just see Spacs as a means to an end for us.”

The company’s shares are expected to start trading on the Nasdaq exchange on Monday. BuzzFeed, known for its listings, prepared a quiz for the event called, “Should You Buy BuzzFeed Shares?” The quiz is “purely satirical,” Peretti said.

Peretti created BuzzFeed as a lab 15 years ago to see what kind of content would become popular on the internet. The site grew rapidly and won younger audiences with stunt videos, such as exploding a watermelon with rubber bands, and viral posts such as “The dress”. The company also invested in journalism, for which he won a Pulitzer Prize.

But the online media sector has struggled financially. Peretti wants to use public market cash to roll up smaller players in a mega group. “When you have these private companies that everyone has taken [venture capital] investment and everyone thinks what they are worth, it is difficult to make a deal, ”he said. “Being public is going to make it a lot easier.”

Jonah Peretti sitting on a bench
Jonah Peretti created BuzzFeed as a lab 15 years ago to see what kind of content would become popular on the internet © Nicholas Hunt / Getty

BuzzFeed recently agreed to buy Complex, a digital publisher focusing on streetwear, pop culture and sports, for $ 200 million in cash and $ 100 million worth of shares, after acquiring HuffPost last year.

Peretti tried to do a traditional IPO last year, but scrapped that plan as soon as the pandemic hit. In June, BuzzFeed agreed a agreement with 890 Fifth Avenue Partners to go public at a valuation of $ 1.2 billion, or $ 1.5 billion including complex. The company secured $ 150 million through convertible bonds, instead of typical private equity investment (Pipe) financing, a move called “the kiss of death” by Michael Ohlrogge, a professor of corporate finance at NYU Law School.

“The ideal is that you get Pipe investors at $ 10 each. If you can not do that, you give them a discount. If you still can not do that, try to sell them convertible notes, ”he said, adding that the up to 8.5 per cent stake that BuzzFeed’s investors could earn shows that“ it’s even more difficult transaction will be like most Spacs ”.

Peretti also agreed to set aside 1.2 million BuzzFeed shares, some of which will be ceded to shareholder NBCUniversal if the share price falls below $ 12.50.

Spacs, formerly Wall Street’s hottest investment product, has fallen in popularity in recent months. Investors withdrew cash at increasingly higher rates, while Pipes also dried up, forcing companies to more expensive funding sources.

The average redemption rate during the third quarter was 52 percent, up from 10 percent during the first three months of the year, according to Dealogic figures.

BuzzFeed’s Spac enables early investors, including NBCUniversal, to eventually make money. The new venture, founded in 2006, attracted more than $ 500 million from venture capitalists and media companies, announcing BuzzFeed as the future of journalism. However, BuzzFeed and its peers struggled to meet the hype, leading to a period of downgrading, retrenchments and consolidation.

BuzzFeed’s debut in the public market comes because the company has been embroiled in a years-long battle with its journalists, who have entered into a union, over wages. Some of those employees walked out of work on Thursday in protest.

“There is a natural tension about how to reward people who do such important work for the world, while there are also financial realities for what we as a company can afford,” Peretti said. “A Pulitzer does not come with income, and that’s right, it’s part of the mission. . . But we must also make sure we maintain fiscal austerity. ”

BuzzFeed performed better than expected during the pandemic, ending 2020 with $ 4 million in net revenue, compared to a net loss of $ 29 million in 2019.

BuzzFeed estimates that it will double its revenue from $ 520 million this year to $ 1.1 billion in 2024, aided by its fast-growing trading business, selling products ranging from spatulas to sex toys.

“Digital media has been overheated, and then undervalued, and is now in a place where it will be evaluated more like a business,” says Peretti. “Not ‘Is it hot or not?’, But what kind of growth and income and profit does it deliver? We made half a billion dollars in revenue this year. “

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