NBCUniversal expects to lose about $100 million in its investment deal with BuzzFeed, which in June had planned to go public via a SPAC.
Digital publisher BuzzFeed’s plan was to merge with a special-purpose acquisition company, but NBCUniversal leaders were disappointed at BuzzFeed’s value of $1.5 billion, which is below where it was in previous years, The Wall Street Journal reported. In the deal, NBCUniversal could be facing a loss of $75 to $100 million, depending on the stock price, the report said.
BuzzFeed was seeking a $1.5 billion valuation based on a projected profit of $117 million by the end of 2022. Most of it was pitched as coming from e-commerce revenue. The valuation was 13 times the profit, which was more in line with a tech company rather than a content publisher.
“Virtually all companies are cloaking themselves in a mantle of tech,” Peter Csathy, founder of advisory firm CREATV Media, previously told TheWrap. “The market rewards that with higher valuations and higher multiples. It is certainly a key financing strategy to position yourself more as a tech company than a media company. BuzzFeed is fundamentally a content company but serves up content in a tech-transformed world.”
In April, however, the deal was approved when BuzzFeed CEO Jonah Peretti made NBC a guarantee of concessions that still came with a loss of some $100 million, people familiar with the matter said in the WSJ report. In order to ink the deal, Peretti agreed to terms that would put the burden on his company to raise its shares after the merger. According to the report, he had offered a portion of his stake to NBCUniversal if the shares did not reach their target.
The frenzy of SPAC deals in recent years is now pointing to a cooling-off period, some investors say. BuzzFeed’s current SPAC deal is part of a trend revealing that many companies merging via SPACs have seen shares dropping. This could lead more investors to proceed with caution, and possibly more deals falling through in the future.
“You change strategies sometimes to capitalize on the force of the day. Here is an opportunity to capitalize on that in this new scenario, if they’re not too late to the party,” Csathy told TheWrap.
NBCUniversal had invested $400 million in BuzzFeed throughout 2015 and 2016, as appeal from outside investors continued to grow. The investments were intended to be focused on viral news and video content on the platform, with the aim to also bring BuzzFeed into the company’s broadcast properties.
Over the years, BuzzFeed’s growth has been driven by its millennial-focused content and approach in developing viral, digital content, such as quizzes, its own headline automation tool, and partnerships with e-commerce companies. Its plans to go public also included acquisition of Complex Networks, another brand with strong reach among younger consumers. As that growth slowed, however, BuzzFeed found itself slashing costs and investing more into e-commerce efforts and licensing. Last year the company’s revenue was $321 million.
Analysts said in the report that they expect to see many investors behind SPAC deals to pull out and avoid loss if they see shares trading below their listing price with those companies.