By Benjamin Mullin and Lukas I. Alpert
Discovery Inc.-backed digital publisher Group Nine Media has
agreed to acquire women-focused publisher PopSugar, the companies
said, the latest merger among new-media firms hoping that greater
scale will help them sell online ads, where Facebook Inc. and
Alphabet Inc.'s Google dominate.
The all-stock deal values PopSugar at more than $300 million,
according to people familiar with the matter, and will give its
shareholders more than 30% ownership of the combined company, which
will keep the Group Nine Media name. Group Nine's shareholders will
own the rest.
Group Nine -- whose properties include The Dodo, a digital
outlet focused on animal stories and videos, and news destination
NowThis -- was valued at more than $600 million in the deal, the
people said. That is consistent with the valuation from its last
funding round last month, the people added. Group Nine, whose
largest shareholder is nonfiction TV programmer Discovery, has
raised $190 million to date. The combined company is worth about $1
billion, according to a person familiar with the matter.
Group Nine's purchase of PopSugar is the third digital-media
transaction in the past two weeks. Vox Media agreed to purchase New
York Media in an all-stock deal that valued New York at about $105
million, The Wall Street Journal reported. Last week, Vice Media
agreed to purchase digital publisher Refinery29 for about $400
million in a mostly-stock deal that included some cash, according
to people familiar with the matter.
The digital publishers are all betting that bulking up their
audiences will help them sell ads in an online industry where U.S.
marketers are spending the majority of their money on Facebook and
PopSugar's top advertising categories of retail, beauty and
consumer packaged goods will be a nice complement to Group Nine's
which include financial services and travel, the companies
"There are lots of complementary revenue streams," Group Nine
Chief Executive Ben Lerer said in a joint interview with PopSugar's
husband-and-wife co-founders, Brian and Lisa Sugar. "There is a
shockingly small amount of cannibalization."
PopSugar expects to have about $100 million in revenue this
year, a person familiar with the matter said. The firm has raised
about $41 million from investors including Sequoia Capital and
Comcast Corp.'s NBCUniversal. PopSugar didn't disclose its
valuation after its last funding round in 2011.
Group Nine, which doesn't disclose its revenue, isn't
profitable, according to people familiar with the matter, but it
has doubled its revenue in the past three years.
Investors, from venture-capital firms to large media companies,
pumped huge sums into digital-media outfits over the past several
years, assigning lofty valuations to them. It is hard to tell from
these mergers how much each company is intrinsically worth now. In
stock deals between privately held companies, the parties
themselves assign valuations that might not reflect how they would
be priced in a cash-based acquisition.
In addition to Discovery, other big media companies placed their
own bets on digital publishing. NBCUniversal has invested a
combined $600 million in BuzzFeed Inc. and Vox Media, for example.
Walt Disney Co. put more than $400 million into Vice Media.
Mr. Lerer said he thinks the current wave of deals could create
profitable companies large enough to draw takeover interest from
the media giants.
But there are reasons for skepticism: digital publishers, in
many cases, have yet to see substantial returns for the investments
they already have received, as the industry hasn't grown as fast as
Group Nine and PopSugar are family businesses. Mr. Sugar,
PopSugar's chief executive, started the company with his wife,
Lisa, the company's president, in 2006.
Group Nine was created in 2016 from the merger of several
digital-media businesses founded by members of Mr. Lerer's family
with digital properties owned by Discovery. Izzie Lerer, Mr.
Lerer's sister, co-founded The Dodo. Their father, Kenneth Lerer,
is a veteran media executive who co-founded BuzzFeed, HuffPost and
Group Nine news destination NowThis.
Mr. Lerer and Mr. Sugar began discussing the deal over steak and
pizza at the Cannes Lions advertising festival in France this
summer and effectively sealed it months later when Mr. Lerer
visited the couple in San Francisco and got to know their family.
"Once we decided, intellectually and culturally, that this made
sense, things happened very quickly," Mr. Sugar said.
Mr. Sugar and Michael Moritz, a partner at Sequoia Capital, are
joining Group Nine's board of directors, the companies said. Ms.
Sugar will join Group Nine's executive team along with Mr. Sugar.
The management structure of the combined company will be announced
after the deal closes.
The younger Mr. Lerer said he didn't expect deep cuts during the
integration process. The two companies have offices in San
Francisco, New York, Chicago and Los Angeles, and the combined
company will remain bicoastal, Mr. Lerer said.
Quincy Smith, the founder of Code Advisors, advised PopSugar on
the deal. Cooley LLP advised Group Nine.
(END) Dow Jones Newswires
October 07, 2019 17:29 ET (21:29 GMT)
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