_{POTENTIAL M&A}

Take This Quiz to Find Out Why Buzzfeed is F*cked

We are four weeks into 2024, people are hitting the desks, and we here at Buysiders are back in the salt mines after our first ever Deal of the Year awards (unofficial sources say our audience was bigger than the Golden Globes).

The beginning of the year has marked some drama unfolding at Buzzfeed that could bring some sharks to the water.

Here’s the situation, everyone other than Chamath will tell you how bad SPACapalooza was for everyone other than the SPAC sponsors, but Buzzfeed is probably the poster child for this.

Long story short, Buzzfeed merged with 890 Fifth Avenue partners back in December 2021, which was supposed to provide Buzzfeed with cash to concurrently acquire Complex Networks for $200M of cash and ~$100M of equity.

However, SPACs rarely delivered on their promised cash to the balance sheet because shareholders who anchored the SPACs are allowed to redeem their cash at the time of de-SPAC’ing.

Said differently, if the SPAC has $100M of cash “in trust,” then the day of de-SPAC’ing (merger), that $100M could be at MOST $100M, but likely will be reduced pretty significantly.

Towards the end of the SPAC hay day in 2022 redemptions were circa 90%+ in almost every deal, meaning the same $100M SPAC would only deliver $10M to the balance sheet at closing. 

In order to get around this, various structures were introduced, namely - convertible notes. Buzzfeed plugged the hole from the redemption issue with a $200M convertible note due in December 2024.

Naturally, Buzzfeed has missed its likely asinine SPAC deck projections - don’t worry, they all do - so they are left with selling its Complex Networks assets (the same ones they paid $300M for).

Where things get worse is that Buzzfeed was guiding towards a deal of $150M for Complex, but now they are looking at something closer to $100M as talks advance with Ntwrk (a company backed by Live Nation and Main Street Advisors).

As of Q3’22 (year-end accounts aren’t out yet) Buzzfeed had $42M of cash. Basic math: $42M cash + $100M sale of Complex = $142M. $142M is less than the $200M face amount of the convertible notes, which have also accrued interest in the meantime.

Suffice to say, Buzzfeed might want to put a list on their website of “Top 10 things my creditors love” because come the end of the year, they will be the ones at the helm…especially given Buzzfeed’s share price performance…

_{EXIT OF THE MONTH}

A $26Bn Blank Canva-s

Canva staff and its initial VCs are lining up $1Bn of privately held shares in a secondary market sale.

This deal is expected to be value Canva at $25.5Bn, which is a flat round from the last sale in August 2022 led by Blackbird, Square Peg Capital and Airtree.

While this is a great valuation, it is important to note that in 2021, Canva raised $200M at a $40Bn valuation, and the three VCs cut the valuation by ~36% when they were beginning to unwind.

This will mark one of the larger private tech deals, including ones done by OpenAI and SpaceX, so despite being a flat round it is still significant.

To-date Canva has raised $770M across 14 rounds of funding and has been hinting at going public recently. Canva has been profitable since 2017 and has added a solid number of US investors to its cap stack, making it possible that a 2025 IPO could be in the cards. 

It seems like the Nasdaq is angling for the listing after it put Canva on its Times Square billboard (prime real estate in NYC) to congratulate them for being named as the best workplace for innovation.

While this is all mostly speculation, it is great to see a path to liquidity for employees of Canva and VCs who have had their securities tied up in the illiquid public markets.

Keep your eyes out for a 2025 IPO from PowerPoint’s flashier, but less effective, rival.

_{EQUITY + M&A COMBO OF THE MONTH}

Lionsgate Splits Up

Speaking of how badly SPAC deals have done in the past, we got one more right before Christmas that we should talk about.

Lionsgate - an already public company - announced that it would split off its studio business (comprised of its TV / movie studios) and merge it into Screaming Eagle Acquisition Corp, a SPAC.

The deal is being struck at an enterprise value of ~$4.6 billion.

This deal includes a $175 million committed PIPE to provide cash to the balance sheet of the PF company, and they expect another $175M from the cash in trust (good luck). Interestingly, the PIPE investors are getting a deal at $9.63/share, below the public market price of $10/share.

Upon closing of the transaction, it is expected that current Lionsgate shareholders will own 87.3% of Lionsgate Studios, Screaming Eagle Shareholders will own 5.7%, and PIPE investors will hold 6.3%.

Here’s a lesson for everyone, always read the footnotes:

Based on the above this is a great deal, but the Lionsgate deal is showing a 10.7x multiple.

The difference is that the Lionsgate multiple is off of 2025E EBITDA, but the rest are LTM.

Talk about apples and oranges. This implies an FY2025E EBITDA of ~$437M. True LTM EBITDA for this business is $287M (excluding the Media Segment), so the LTM multiple is really 16.2x.

For those of you curious on how valuation in these deals works, here is the snip below. You can see they are assuming $175 million from the SPAC trust, which is ~1/4 of the SPAC Size ($750 million), so they are assuming roughly 75% redemptions.

Any cash over $175 million will be used to repurchase shares at $10/share, which is effectively the same as redeeming them.

One thing that will be interesting going forward is how this impacts the Lionsgate RemainCo share price given the relationship between the companies (see below).

Hedge funds are going to have a field day with the look through valuation on Lionsgate based on the valuation of Lionsgate Studios and visa-versa.

_{NEWS ROUNDUP}

Top Reads

• Kroger and MidOcean Partners announce JV

• BlackRock to buy GIP for $12.5Bn

• Grupo Mexico eyeing to acquire First Quantum’s Mexican copper assets for $1Bn

• Platinum Equity acquires E&A Scheer

• Authentic Brands Group acquires Sperry

• Intel acquires Silicon Mobility