CNBC Television published this video item, entitled “Why there’s a a slowdown in SPAC activity” – below is their description.
Dan Primack, Axios Business editor, and Cameron Stanfill, Pitchbook venture analyst, join ‘Power Lunch’ to discuss whether SPACs are bad deals as more and more of them collapse. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
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 had a plan to pay back investors with publicly traded stock. A few of the largest players would go public first, and those companies would then roll up smaller peers, paying with equity to get deals done. The end result would be a handful of larger digital media entities with enough global scale to survive.
But when the Securities and Exchange Commission cracked down on SPAC accounting practices in April, the booming market came to a near standstill. In the first quarter, there were an average of 89 new SPACs issued each month, according to Bespoke Investment Group. From April through late August, issuance has dropped to an average of fewer than 10 per month.
While issuance has plummeted, remaining SPACs are aggressively hunting for deals. July had the second-highest month of SPAC transactions ever on record.
Still, the recent performance of already-completed deals has been lackluster. Prices for the overall space are at the lowest levels since late 2020, said Bespoke. This is affecting SPACs that haven’t found targets yet. Of the 426 post-IPO SPACs which have not yet announced a deal, the average is trading 31 basis points below its IPO price, said Bespoke. In other words, investors are assuming that target companies will be increasingly undesirable.
This confused market, with many SPACs still hunting for deals but very few new SPACs forming and a clear skepticism pervading transactions, has caused some digital media companies to hang on to the SPAC dream while others are rejecting the blank-check companies as merely a fad.
There are three broad camps among digital media executives right now: SPAC believers, SPAC considerers, and SPAC rejecters.
SPAC Believers: Buzzfeed, Forbes, Bustle, Group Nine
The first group continues to believe SPACs are the best way forward. Digital media entities provide steady growth, reliable revenue and aren’t as fanciful with projections as some of the companies that have led to the SPAC downturn, said Bryan Goldberg, Chief Executive Officer at Bustle Digital Group.
“Broadly speaking, SPAC mania has gone sideways, but that doesn’t apply to the digital media world,” said Goldberg. “There’s been a shift from growth to value. That should help digital media founders. What Wall Street normally considers a bargain may be an attractive multiple to media CEOs.”
Bustle plans to pursue a SPAC later this year or early next year, said Goldberg.
This past week, Forbes announced it had reached an agreement to go public via SPAC after reaching a deal at an implied $630 million valuation with the blank check entity Magnum Opus Acquisition. The same day Forbes announced its deal, Axel Springer agreed to pay about $1 billion for Politico, another digital media company.
While that $1 billion exit may seem routine to many large institutional investors, it’s meaningful to digital media founders. Very few companies in the industry have sold at a multiple as high as 5x revenue, Goldberg noted. Politico generates about $200 million in annual revenue. That’s a bullish sign for an industry that’s come back to life after pandemic quarantines in 2020 briefly rocked advertising revenues.
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