Proposed Axel Springer Split Is a Smart Move
It has been a difficult time here in the United States these last few days and there’s nothing I could write that would fix that, so we’re just going to jump into the newsletter…
On July 24th at 12pm ET, I am hosting a webinar with Todd Handy, Chief Revenue Officer at SEBPO, to discuss how media companies can unlock the advantages of outsourcing.
I am a firm believer that media companies will need to get leaner. That means investing more resources in things that are closer to the readers and clients, and finding ways to save money on back office tasks.
SEBPO specializes in working with advertising, technology, and media companies to accomplish exactly this and we are going to dig into SEBPO’s framework for outsourcing, why and when it makes sense to do it, and avoiding common mistakes and overcoming hesitations.
PE needs an exit one way or another
Five years ago, KKR, one of the largest private equity funds in the world, acquired an ~43.5% stake in Axel Springer, the German media conglomerate that owns a number of European assets as well as Politico, Business Insider, and Morning Brew, my former employer. The purpose of this acquisition was to take Axel private, allowing it to grow “away from the eye of skeptical equity markets.”
With any private equity deal, there is an inevitable clock ticking down to the day that PE can get an exit. Normally, those exits come in the shape of a sale or an initial public offering. But sometimes, things are a little more creative.
According to the Financial Times, negotiations are underway to split Axel Springer as a means of giving KKR its exit.
Under the separation being discussed, Axel Springer’s chief executive Döpfner and Friede Springer, the widow of the company’s founder, would assume greater control of the group’s media properties, according to four people with knowledge of the matter.
These include US news sites Politico and Business Insider, and German publications Bild and Die Welt.
KKR and Canada Pension Plan Investment Board, who combined have the largest shareholding in Axel Springer, would take control of its portfolio of classifieds websites, including jobs platform StepStone and real estate ads unit Aviv, the people added.
By splitting the company in two, KKR and CPPIB get a growing asset that they can either sell or take public. And Döpfner remains CEO of a smaller, but more focused news media organization. In many respects, both parties should walk away happy. Now this deal is not finished and, like all deals, it can very easily fall apart.
But this deal is made possible because of a smart acquisition Döpfner and Axel Springer made years ago. In 2004, it acquired a 49.9% interest in StepStone Deutschland AG, which was a subsidiary of StepStone ASA. By December 2008, it owned 33% of StepStone ASA. Fast forward to late 2009 and it had acquired 90% of the company. As Reuters reported at the time, StepStone was valued at $200 million.
Fifteen years later, that deal is making all of this possible because of how much StepStone has grown. In 2021, FT reported that Axel was looking to IPO StepStone for up to €7bn ($7.6 billion). That deal obviously fell through and the exuberance of 2021 is behind us, but let’s assume the portfolio is worth $6 billion now. That means that this investment in StepStone has grown by 30x with a CAGR of 35% (these are rough numbers since Axel had acquired some parts even earlier than 2009). Nevertheless, it’s a deal that is clearly paying dividends. And by pushing that over to KKR and CPPIB, the media assets become a prize for Döpfner and Axel Springer’s widow, Friede Springer.
So, what comes next if this deal happens?
Döpfner has made it clear that the focus of Axel Springer is the United States. According to a 2023 story in The Economist:
Across the Atlantic Mr Döpfner does not provoke similar passions. That is about to change, because his ambition is to turn his company into America’s top digital publisher, from number four today. “America has become the main heart chamber and the growth engine of our publishing business,” says Mr Döpfner. Springer already owns Politico, an American website for political news junkies, Insider, another news site, and Morning Brew, which offers business news. It is all part of Mr Döpfner’s plan to return to Springer’s origins as a news publisher, except mostly American, not German—and all digital.
And so, could we see more acquisitions here in the United States? I’d be shocked if not, but the question is what. Axel’s already got Politico, which gives it politics. Business Insider provides business coverage. Could it try to make a play for local pubs? That’s hard, though it has a number of them in Germany.
FT gives us a hint as to what he has his eyes on. In 2015, Axel Springer made a big push to acquire the Financial Times. That deal fell through and Business Insider was the consolation prize. Fast forward to today and the FT hints toward what Döpfner has his eyes on:
People familiar with the thinking of the billionaire former music journalist say that he has expressed interest in buying the Wall Street Journal, currently owned by Rupert Murdoch’s News Corp, if it came up for sale.
Whether that ever happens, who knows? But if I had to rank them, I’d say that Bloomberg News, the Financial Times, and the Wall Street Journal are the three preeminent English language business publications in the world. The first is too tightly coupled to the terminal business, so that’s off the table. Nikkei now owns the second. And so, it’s just WSJ. I’d bet Döpfner would sell everything for a chance to own that. Will that happen? Guess we’ll have to wait and see.
Is The Daily Mail making a move to the States?
Buried deep in this weekend’s Semafor Media newsletter was this tidbit:
The Daily Mail Group has held talks recently about buying the Skimm. One person familiar with the talks told Semafor that the Mail has been interested in the digital media company’s strong, largely female audience and its newsletter offerings.
For context, The Daily Mail Group is focused almost entirely on the United Kingdom. And the Skimm, which is now 12 years old, is a newsletter targeting millennial women. There are a couple of things worth looking at here.
First, the Skimm has a valuation problem. It has raised close to $30 million at a valuation north of $100 million. And while I don’t know the terms of its $12 million Series C, I’d be shocked if there wasn’t a hurdle rate—a minimum return for those later investors. That means selling for only $100 million won’t cut it if everyone wants to come out ahead. It’s quite possible that it needs significantly more than that.
Last year, the company let go of employees in January and April with another 12—10% of the company—leaving in November. And so, it’s clear that the company is pushing to achieve a certain level of profitability, but enough to justify a nine-figure valuation? I spoke with one source with some familiarity of the numbers who estimated that the Skimm was likely generating around $30 million in revenue and was breakeven. Even if it was generating a 10% margin, that’d only be $3 million in EBITDA—not enough to justify a nine figure valuation.
Second, the question I have is why don’t more media companies look to acquire these sorts of newsletters? The Wall Street Journal made a big miss not acquiring Morning Brew. 1440, Daily Upside, the Skimm, etc. are all engaging audiences with very high open rates. If you’re trying to acquire a news-friendly audience, why wouldn’t you want to own one of these?
And so, it would make sense for The Daily Mail to make a move here. I’m just unconvinced that the valuation will be friendly enough. That doesn’t mean it can’t get done, but someone’s going to lose money. We’ll have to wait and see who.
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