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6 Months : From Aug 2019 to Feb 2020
By Benjamin Mullin and Lukas I. Alpert
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 8, 2019).
Discovery Inc.-backed digital publisher Group Nine Media Inc. has agreed to acquire women-focused publisher PopSugar, the companies said, the latest merger of new-media firms hoping that greater scale will help them sell online ads, where Facebook and 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 latest 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 deal 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 Inc. and Alphabet Inc.'s Google.
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 said.
"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 Sugar 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 many anticipated.
Group Nine and PopSugar are family businesses. Mr. Sugar, PopSugar's chief executive, started the company with Ms. Sugar, 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 HuffPost and Group Nine news destination NowThis and is a former chairman of BuzzFeed.
The younger 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.
Corrections & Amplifications Kenneth Lerer is a former chairman of BuzzFeed. An earlier version of this story incorrectly said he is a co-founder of BuzzFeed. (Oct. 7, 2019)
Write to Benjamin Mullin at Benjamin.Mullin@wsj.com and Lukas I. Alpert at email@example.com
(END) Dow Jones Newswires
October 08, 2019 02:47 ET (06:47 GMT)
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