June 7, 2022

The Easy Liquidity is Gone

There’s something special about a lock-up period. After a company goes public, most shareholders are “locked” from selling their shares. This ensures that the stock doesn’t instantly tank when it goes public. And most significant holders have to disclose when they’re selling so that the average investor is not left holding the bag.

Well, Monday was 180 days from when BuzzFeed went public. And since most lock-ups expire 90-180 days after a company goes public, investors could finally sell. According to The Wall Street Journal:

BuzzFeed Inc.’s stock plummeted 41% on Monday, shortly after a ban preventing executives and major institutional investors from selling their shares was lifted.

A BuzzFeed spokesman attributed the volatility to the lockup period, which he said expired on June 1. He said the company had very low “float” and few owners of its stock—making it sensitive to extreme fluctuations when major investors sell.

It’s rough. In 2021, its revenue was $397.6 million. Its net income for the year was $25.9 million. And at the close of trading on Monday, the company was worth $302 million. That’s 0.76x its 2021 revenue. Who knows how this year will play out, but it reported Q1 revenue was up 26% year-over-year at $91.56m; however, net income plummeted.

But this isn’t a story about BuzzFeed’s numbers, which are pretty pedestrian at this point. BuzzFeed is being dragged for a ride in a stock market that hates weak profits.

Instead, this is a story about one thing: easy liquidity.

The first to try was not BuzzFeed but Group Nine. On December 21, 2020, Group Nine Acquisition Corp., which had Group Nine as its main sponsor, was announced. It looked to raise $230 million, buy another company, and in the process, also take Group Nine public. Essentially, this was like a subsidiary buying a parent company, but the outcome would be a public Group Nine.

That deal, though, never materialized. Either because it couldn’t find another company to buy (it had stipulated it wouldn’t just take itself public) or because the markets began to cool, Group Nine Acquisition Corp. remains a shell company. That said, it does seem like there’s a little movement. In an SEC 8-K filing:

On May 27, 2022, 890 5th Avenue Partners, LLC (“890”) entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Group Nine SPAC, LLC (“Sponsor”) and Group Nine Media LLC (“Seller”), pursuant to which 890 purchased certain Class A interests of the Sponsor held by Seller, which economically corresponds to 4,025,000 shares (the “Subject Interest”) of Class B common stock, par value $0.0001 per share (the “Founder Shares”), of Group Nine Acquisition Corp. (the “SPAC”).

That’s a ton of legalese to say that 890 5th Avenue Partners (which was the company that took BuzzFeed public) bought ~4 million shares of Group Nine SPAC from Group Nine Media. Yeah, confusing, right? It looks like Vox doesn’t want to be in the self-buying SPAC business anymore, so it’s opted to sell its sponsor shares to a “seasoned” SPAC veteran.

Then there was Forbes. I kind of figured this one was going to happen. In August, it announced that Magnum Opus Acquisition would be taking Forbes public at a $630 million valuation. In February, Binance agreed to invest $200 million.

Well, that doesn’t appear to be happening now. Back on May 31, The New York Times published that:

Forbes, the wealth-obsessed business publication, has decided to call off a deal to go public through a special-purpose acquisition company, also known as a SPAC, amid cooling investor appetite for the once-popular financial instrument, two people with knowledge of the plans said.

The cancellation could be announced as early as this week, one of the people said.

Forbes announced it on the same day. So, another SPAC had failed to launch.

Bustle Digital Group (BDG) didn’t even get a chance. In a mid-2021 CNBC story, reporter Alex Sherman wrote, “Bustle plans to pursue a SPAC later this year or early next year, said Goldberg.” But, unfortunately, I don’t think that’s going to happen any longer.

And Vice continues to struggle. It thought a SPAC might get it out from under the heavy boot of TPG. But, alas, that didn’t happen either. And so, Vice now has to consider selling itself for parts.

In December 2020, I wrote about Group Nine’s SPAC and said:

Why do this? That answer is actually pretty straightforward. The market is absolutely insane. Like… really freaking insane. What’s better than getting insane returns on liquid assets, am I right?

But with there being so much excitement about the public markets, this is Group Nine’s chance to clear the cap table, help investors generate a return on their long-term investment and have a tool to start acquiring other assets.

It appears only BuzzFeed was actually able to do that. It moved fast, got a partner, and took itself public. Jonah Peretti may live to regret it. According to an Insider story from December 2021:

Peretti agreed to give NBCU up to 1.2 million of his 6.4 million shares if the price falls below $12.50 on a certain date, according to a filing.

The transfer date is a ways off — December 2023 — but BuzzFeed’s life as a public company is already off to a tough start. After opening Dec. 6 at $10.95 and initially jumping to $14.28, the stock closed Friday at $6.07.

He still has about a year and a half to get it to over $12.50 a share, but things don’t look so great right now. But maybe he doesn’t regret it. There were clearly no other investors out there willing to keep propping up BuzzFeed. And, even if the stock is in the toilet, he was able to acquire Complex simultaneously, which gives the company that much sought-after scale. So maybe he’s playing 3D chess, and he has investors exactly where he wants them.

Maybe not.

All of this is to say that what looked like easy liquidity when all of these media executives started planning SPACs doesn’t seem to have materialized. BuzzFeed is the only one public. Forbes couldn’t get it across the finish line. Group Nine looks to be getting out of the SPAC business (though the name remains). BDG never had a chance, and Vice is, well, Vice.

I’d be lying if I said I wasn’t disappointed. I wanted to see these companies go public. It would have been exciting (I know, I need hobbies). Maybe next time.

There’s opportunity in niche demographic media

I have long believed there’s opportunity in niche demographic media. And there’s a new, big player in the business. According to Axios:

Latina activists and entrepreneurs Jess Morales Rocketto and Stephanie Valencia have raised $80 million to launch a new Hispanic media company called the Latino Media Network.

With the capital, the duo has acquired 18 Hispanic radio stations across 10 markets from TelevisaUnivision.

– The deal, valued at $60 million, is one of the largest single acquisitions of radio stations by a Latino-owned and operated company.

– “Those 10 markets are some of the most dense markets in the country,” Valencia said, referring to markets like Los Angeles, New York, Miami, Houston, Chicago, Dallas, San Antonio, McAllen, Fresno and Las Vegas. “They basically give us access to one-third of the Hispanic population in this country.”

While the radio ad market has recovered from COVID, Valencia said there will be more business opportunities for the company as it expands digitally into multi-platform audio across YouTube podcasting and other places.

I can’t speak to whether $60 million for radio stations is the right price; however, I think there is a lot Latino Media Network can do now that it has acquired access to 33% of the “Hispanic population in this country.”

As I wrote in 2020, this demographic is large, young, bilingual, and responsible for most new businesses in the United States. And I think when you have that blend, it makes sense to build media assets for the demographic.

From here, Latino Media Network can go anywhere. It could launch a publication specifically for the business professional community (I would do this, but I like business media). It could launch or acquire a line of commerce. It could create a massive annual festival for culture, music, food, or whatever it wants.

Step one is to create the audience. By acquiring these radio stations and, therefore, an audience, it can focus on developing new products. And, because its audience is clearly defined, it can give listeners exactly what they want. That’s the real secret to niche media. You become intimately aware of your readers’ or listeners’ needs.

Now, all of this is speculation. From the Axios story, it seems focused primarily on extending audio across other platforms. And that makes a lot of sense. But more will come.

The reality is that there is opportunity in niche demographic media. The Juggernaut, a media company that refers to itself as “smart journalism on South Asia and South Asians around the world,” continues to operate. There’s Capital B, a “Black-led, nonprofit local and national news organization reporting for Black communities across the country.” Communities need media too. And entrepreneurs are filling that void.

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