Is First We Feast Worth $70 Million?
On Friday, we reported that one of the larger b2b media companies here in the United States is currently having conversations with private equity. The goal is to start acquiring other companies and take this brand to the next level. AMO Pro subscribers received the details of this in their inboxes. If you never want to miss this kind of story again, become an AMO Pro member today. You can sign up here.
Keep scrolling to see:
- Two unique stories in the newsletter
- This week’s podcast episode
- Two AMO Pro exclusive stories, one about Skift and the other about non-profits
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On October 15th at The Times Center in New York City, we’re convening the second annual AMO Summit.
You’ll hear from media operators and investors across the media ecosystem. We will discuss interesting media companies with smart models, return to the state of media M&A in preparation for 2025, dig into how AI is impacting media (beyond just traffic), and much more. Plus you will get to meet 225 people from the AMO community.
Registrants are coming from companies such as Questex, Morning Brew, Blockworks, 1440, Hearst, Stacker, and many more.
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First We Feast is for sale
What something is worth is an interesting question to ask because we want to assign an objective answer when in reality, it is almost always subjective. Ultimately, what something is worth is what someone is willing to pay and not a dollar more.
When buying media assets, a number of factors determine the price. The simplest—and the ones we spend a lot of time talking about—are EBITDA, growth, and business model. This allows us to make statements like “because it’s a subscription business, it’s worth 11x EBITDA versus if it were an ad business and it’s worth 8x EBITDA.”
But in some cases, there are other factors that are not discussed as much. For example, what are the terms for the deal? Is there any key man risk? What does the buyer want to do with the asset from a strategic perspective?
First, the news: Bloomberg reported that BuzzFeed had hired UBS months ago to run a formal process in an attempt to sell First We Feast:
Yet behind the scenes, the future of the show is uncertain. BuzzFeed Inc. has been trying to sell First We Feast, the food-oriented media company that owns Hot Ones. BuzzFeed’s bankers at UBS Group AG are running a formal sale process and initially asked for more than $70 million, according to people familiar with the matter.
After months of talks, UBS has yet to find a buyer. While several parties expressed interest, they have been unwilling to meet UBS on price. First We Feast is profitable and generates about $30 million in annual revenue, largely from brand and licensing deals tied to Hot Ones, said the people, who asked not to be identified because the negotiations are confidential.
And so, when we ask, “is First We Feast worth $70 million,” the answer is, “it depends.” Those that UBS are talking to say no, but there are a number of factors going into this.
First, let’s explore the financials. If First We Feast generates $30 million in annual revenue, that means it probably generates $7-8 million in net margin. That’s a net margin in the mid-20s. Can it command a 10x EBITDA multiple? There’s an argument to be made that it could be worth that. It’s a premium brand, with the right investment, maybe it can become even bigger with more diversified revenue. So, maybe 10x is okay.
But let’s look at the second, which is a key risk: Sean Evans, the creator of Hot Ones, one of the biggest properties within First We Feast. As Bloomberg reports, he’s not on a long-term contract. So, a prospective buyer needs to ask whether Hot Ones can survive and grow without him. It’s not a guarantee that he walks, but that sort of leverage, especially with him on short-term contracts, can scare prospective buyers away.
Let’s say, for example, someone comes along and buys First We Feast assuming they can lock Evans up. He then balks and starts demanding a bigger cut of revenue. That brings us back to the financials. You either pay him, which compresses the margins. Or you don’t pay him, which risks audience size shrinking, which comes back to the multiple paid. Brand certainly matters, but how much of the brand is Evans?
Third, BuzzFeed is a forced seller. It needs to continue getting rid of assets so that it can pay off debt. So, prospective buyers see blood in the water. No one pays a premium dollar when someone is suffering.
This is why it’s tricky to sell assets or parts of a company versus the whole thing. You need to tell a compelling story about how selling one asset allows you to invest in another. It’s a position of strength. Compare that to BuzzFeed, which is only selling because it has that debt. And so, a buyer looks at that and goes, “why should I bail out BuzzFeed?”
On the other hand, how much of a forced seller is BuzzFeed?
When it sold most of the Complex assets to Ntwrk, it used a large chunk of the cash to pay back debt holders. As Bloomberg reports, it has over $100 million in debt remaining and the note holders want to be repaid. After the Ntwrk deal, it came to terms with the note holders that stipulated, “95% of the net proceeds of future asset sales must be used to repay the Convertible Notes.” These note holders will want the assets to be sold, but they will get even less from the assets if they go into bankruptcy. So, how likely are they to force repayment at the end of this year?
That means, BuzzFeed can be patient. But only so patient. At some point, if the market is unwilling to value First We Feast at $70 million, the holders of the convertible notes are going to get antsy. How much of a haircut would they accept to get more of their money back?
If I’m a buyer, I look at the brand, the revenue and margin mix, the lack of a long-term contract for the star talent, and the fact that BuzzFeed, ultimately, needs to make a deal, and I wait. At some point, their lofty expectations will soften.
I anticipate Sean Evans and his team will finance a deal to buy First We Feast. Because the star talent is critical to the long-term of the business, the only way to derisk this deal is to have Evans along for the ride. Bloomberg hints that the team has discussed doing this, so I expect that to be the likely outcome. What the structure of that sort of a deal looks like remains to be seen.
Will people pay for news?
It’s a question that the industry asks repeatedly, especially as brands increasingly look to keep their ads away from news. And so, each year, the Reuters Institute for the Study of Journalism does an in-depth study that analyzes the news market around the world. This year’s was released last week.
One of the key findings that has been shared is that, here in the United States, 56% of people who don’t pay for news say they will never pay for news. It’s even worse in other parts of the world, such as the UK, which reported 69% and Japan at 67%.
And so, we can spend a lot of energy on that big number and lament the fact that the industry is struggling. But Jack Marshall over at Toolkits had a different interpretation in this tweet:
To put Reuters’ Digital News report in a different light… 17% of consumers globally are already paying for online news and 43% of consumers who don’t currently subscribe say they would be willing to. That means the market for paid news products is around 53% of the global population.
Marshall is right. People are willing to pay for news, but they currently don’t. And so, we have to ask why and figure out how to get them to convert.
First, the product doesn’t speak to them. Many of the large media companies are trying to serve too many people and their content shows. People can seek out the content they want easily on the internet, so those that go the deepest on a specific topic will get the reader. News brands need to niche down.
To build on this, the internet makes it cheaper to run a media company than it used to be. Consider my own brand. If I launched A Media Operator in 1980, I’d be distributing a magazine. The costs would be far higher with more people working to get the product out. Now, it’s so much easier.
Second, the price point may be off. As an industry, we’ve done a good job of converting the people who are most likely to pay for news. And we charge them a healthy price for it. But considering every incremental subscriber is nearly 100% margin and the ARPU from ads is far lower than subscriptions, perhaps it’s time to rethink how we price.
This is one reason why I like some of what WaPo CEO Will Lewis is proposing. As Puck reported a month ago:
For core audiences, the Post will introduce three additional subscription tiers: “Plus,” a B2C offering with additional editorial content for superfans; “Pro.”
Is there a world where publishers turn their high-priced subscription into the Plus product and then introduce a cheaper version? Could it be a metered subscription where you are buying access to 10 articles a month? I’m not a fan of microtransactions, but publishers need to figure out how to get varying amounts money from different cohorts. Otherwise, we won’t be able to convert more to paying.
People will pay. We need to do a better job of lining up the product to the price.
AMO Pro: One Year In, Skift Plans Next Steps With Ask Skift
A year ago, Skift launched its Ask Skift chat bot, which was trained on its 10+ years of reporting and research, along with public SEC filings. Fast forward and after 23,000 questions asked since December, Skift partnered with House of Kaizen to do a research study on how the audience perceived the product.
44% of respondents said they were aware of Ask Skift with 22% noting increased visits due to the tool. But Jason Clampet, co-founder and Chief Product Officer at Skift, told A Media Operator that the team is already hard at work on the second version of the product, looking to make it feel more like a research tool and less like a chatbot.
AMO Pro: Does Non-Profit Status Provide Desperate Local News Publishers a Lifeline?
AMO reporter, Chris Sutcliffe, explores whether a non-profit status can provide local news publishers a much needed lifeline. In this piece, he spoke with Andy Cates, founding chair of Memphis Fourth Estate, which publishes the Daily Memphian, as well as George Brock from The Times (in London) and Martin Giles from the Guildford Dragon.
The short answer is that it can help because it changes the relationship with the audience. As Brock explained, there is a reputational benefit because a non-profit status is perceived to be delivering value to a community. They will “also get the reputational gain that a charity status can bring.”
And then there’s Cates, who is unabashedly proud of the fact that 75% of its annual budget comes from its paywall, not donors. In other words, “we run it as a business,” he said.
Don’t Miss: AMO Podcast With Phillip Jackson, CEO of Future Commerce
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Have a great week!
