Here's Why Media SPACs Are So Hot Right Now

For the past six months, there's been a ballooning interest in media and marketing tech companies going public via special purpose acquisition companies (SPACS), which are shell companies set up by investors who raise money via an IPO to merge or acquire yet another business. In 2020, $86 billion was raised by SPACs, according to digital media investment fund Luma Partners. That’s more than three times as many SPAC initial public offerings as there had been in any single year previously. Luma's SPAC ecosystem counts 250 SPACs, 34 of which have completed their merger and now trade under the target company's name. Industry onlookers count roughly 25 active SPACs that are focused on the media and entertainment space. Wonky nomenclature aside, it’s easy to see why SPACs are attractive. Typically, they require less oversight and are a quicker route to market in raising funds. But why the sudden rush of interest by digital media companies like BuzzFeed, Vice, Group Nine Media, Bustle Digital Group and Vox? Media consolidation has been looming for years, with converging factors leading to an increased appetite, according to experts. Not to mention, ad-funded media companies have felt the squeeze, leading to staff cuts and furloughs this past year. “Lots of companies have got their act together in terms of diversifying revenue," said Rob Ristagno, founder of consultancy firm Sterling Woods Group. "Five—even three—years ago, many were overly dependent on advertising.” There’s also a vertical integration play, said Ristagno. Profitable media companies can act as marketing funnels for other products or services that relate to the category of company that acquires them. Nonetheless, the historical buyers of digital media companies—the global media conglomerates—are either on the offense or more focused on investing in their own streaming services. Matt Prohaska, CEO at Prohaska Consulting, pointed to examples like Fox Corp.'s acquisition of ad-free streaming platform Tubi last year and the billions that Comcast is spending on NBCUniversal's Peacock. And for digital media companies, off the back of a pandemic-related ad compression, valuations and audience growth seem a little lackluster today. What Is a SPAC? A special purpose acquisition company, or a blank check company, is a shell that goes public with the promise of acquiring more assets. It’s a route for companies to begin selling shares on stock exchanges in order to raise money. A SPAC IPO is the vehicle of a shell company going public. In a traditional IPO, a private company files to go public, then goes through a road show to line up investors and determine what the price of its shares should be. “There’s an element of necessity being the mother of all invention and some creative thinking going on within a pandemic,” said Prohaska. “But it’s another path for hardworking people to gain financing and exits. And there’s a lot of money on the sidelines right now.” And while there will be a wave of smart people doing this the ethical way, the twin advantages of less oversight and a quicker route to market prick the ears of less scrupulous players. SPACs have their critics, not helped by a reputation for being used to defraud investors decades ago. “We’re probably six months from reading about the first SPAC disaster,” Prohaska said. For digital media, there is a strong case for rolling up a number of brands to max back-end operational synergies. "It is very difficult today to be a $30 million media business and profitable,” said Jason Wagenheim, chief revenue officer at Bustle Digital Group. “You can be a $200 million-plus business with a shared infrastructure supporting a portfolio of brands and be very successful." BDG should know, seeing as it has acquired eight brands in the past four years (not all survived) and has two or three more in its sights, said Wagenheim. One brand, The Zoe Report, was making $5 million in revenue and costing that much to run when Bustle acquired it in 2018. Under BDG, it tripled revenue and significantly cut costs, according to Bustle. In terms of SPAC activity, we’re not done yet. In order to entice ad buyer dollars away from the walled gardens of Google, Facebook and Amazon when audience targeting at scale on the open web becomes obsolete, digital media companies need scale. SPACs are a route to scale, with some specialization in content. “We’re still on the incline; we’re a few years from the trough of disillusionment,” said Prohaska. “SPACs will get plenty of eye rolls by the back half of this year.”

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Here's Why Media SPACs Are So Hot Right Now

Luma Partners' ecosystem counts 250—34 of which have completed a merger

Lucinda Southern

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