A crucial test for the digital media business as well as the SPAC market will be conducted today when BuzzFeed goes public. Both have seen better days in the past.
For more information, visit www.buzzfeed.com/investors. The background: Instead of going through the traditional IPO route, BuzzFeed merged with a special purpose acquisition company (SPAC), which is becoming an increasingly popular way for companies to list on stock exchanges without all of the pomp and circumstance that the traditional IPO route entails.
SPACs are shell corporations that raise money by going public, then acquire other corporations and bring them public as a result of the acquisition.
Investors in the SPAC that is acquiring BuzzFeed, 890 Fifth Avenue Partners, were less than thrilled to learn that the company had chosen BuzzFeed. One hundred and forty-five percent of the $287.5 million raised by the SPAC has been recouped, leaving only $16 million for BuzzFeed (the firm also raised an additional $150 million in convertible debt).
94 percent of investors have pulled their money out of SPACs, which is an exceptionally high percentage for this type of investment. In the third quarter, the average SPAC redemption rate was 52 percent. And that’s up from a 10 percent redemption rate in the first quarter, indicating that investors are becoming more cautious in what had previously been a scorching hot SPAC market.
What about BuzzFeed?
In the years since its Disney princess listicle beginnings, the company has expanded into areas like as physical items and original journalism, for which it has received a Pulitzer Prize, among other awards.
However, with internet behemoths such as Alphabet and Meta dominating the online advertising market, digital media is still a difficult business to succeed in, as evidenced by BuzzFeed’s barely profitable year last year. In addition, management has a poor relationship with many employees, as seen by the walkout by members of the BuzzFeed News Union on Thursday over contract negotiations.
Zoom out: Raising financing is not a problem for all digital media businesses. Former President Trump’s new social media venture has announced that it has raised $1 billion in funding, albeit the company will not reveal the identities of the financiers.