BuzzFeed shows courage in the face of investor exodus ahead of its trading debut

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

Spac investors who went public with BuzzFeed withdrew 94% of their money, signaling skepticism about the media group’s prospects and how much the Spacs have fallen out of favor.

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

Spaces work like blank checks: they raise funds from investors and are publicly traded, with the promise of finding an attractive private company to merge with. Because shareholders don’t initially know which company the vehicle will buy, they can withdraw their money if they don’t want to invest in the chosen target.

After raising $ 288 million from investors earlier this year, ad hoc acquisition vehicle 890 Fifth Avenue Partners announced its merger with BuzzFeed in June. The company will end up receiving just $ 16 million from that initial pot, plus $ 150 million from a convertible bond.

“It doesn’t change our strategy,” Peretti said. “I’m not a Spacs expert, I just see Spacs as a means for us.”

The company’s shares are expected to start trading on the Nasdaq stock exchange on Monday. BuzzFeed, known for its lists, has prepared a quiz for the occasion entitled: “Should you buy BuzzFeed shares?” The quiz is “purely satirical,” said Peretti.

Peretti created BuzzFeed 15 years ago as a lab to see what kind of content would become popular on the internet. The website grew rapidly, reaching a younger audience with stunt videos, such as a watermelon blast with rubber bands, and viral posts like “The Dress.” The company has also invested in journalism, for which it won a Pulitzer Prize.

But the online media industry has struggled financially. Peretti wants to use public market money to group smaller players into a mega-group. “When you have these private companies that have all taken [venture capital] investment and everyone imagines what it’s worth, it’s hard to make a transaction, ”he said. “Being public is going to make things a lot easier. ”

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

BuzzFeed recently agreed to buy Complex, a digital publisher focused on streetwear, pop culture and sports, for $ 200 million in cash and $ 100 million in equity, after it acquired HuffPost last year.

Peretti had sought to do a traditional IPO last year, but abandoned that plan once the pandemic struck. In June, BuzzFeed struck a deal with 890 Fifth Avenue Partners for a valuation of $ 1.2 billion, or $ 1.5 billion including Complex. The company raised $ 150 million through convertible bonds, instead of a typical private investment in public equity financing (Pipe), a move dubbed “the kiss of death” by Michael Ohlrogge, professor of finance at company at NYU Law School.

“The ideal is to find Pipe investors at $ 10 each. If you can’t do it, you give them a discount. If you still can’t do that, you try to sell them convertible notes, ”he said, adding that the stake of up to 8.5% that BuzzFeed investors can earn shows that“ it will be even more. difficult than most Spacs ”. .

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

Spaces, previously Wall Street’s most popular investment product, have declined in popularity in recent months. Investors withdrew money at increasingly higher rates while the pipes also dried up, forcing companies to find more expensive sources of finance.

The average repayment rate in the third quarter was 52%, compared to 10% in the first three months of the year, according to figures from Dealogic.

BuzzFeed’s Spac allows early investors, including NBCUniversal, to finally cash in. The start-up, founded in 2006, has attracted more than $ 500 million from venture capital and media companies, which have touted BuzzFeed as the future of journalism. However, BuzzFeed and its peers struggled to live up to the hype, resulting in a period of downsized valuations, layoffs and consolidation.

BuzzFeed’s public market debut comes as the company engages in a years-long battle with its journalists, who have unionized, over wages. Some of those employees left work Thursday in protest.

“There is a natural tension on how to reward people who do a job so important to the world, while there are also financial realities to what we can afford as a business,” said Peretti. “A Pulitzer doesn’t come with income, and that’s okay, it’s part of the mission. . . But we also need to make sure that we maintain fiscal discipline. ”

BuzzFeed fared better than expected during the pandemic, ending 2020 with $ 4 million in net income, up from a net loss of $ 29 million in 2019.

BuzzFeed predicts it will double its revenue from $ 520 million this year to $ 1.1 billion in 2024, aided by its rapidly growing business activity, through which it sells products ranging from spatulas to sex toys.

“Digital media has been overrated, then underrated, and now finds itself in a place where it will be valued more like a business,” says Peretti. “Not” Is it hot or not? But what kind of growth, income and profit does it generate? We made half a billion dollars in revenue this year.

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