In early 2021, BuzzFeed’s CEO, Jonah Peretti, had a problem. He wanted to take the digital media company — one of the defining players of the internet’s past 15 years — public through a Special Purpose Acquisition Company, or SPAC. At the time, there was a SPAC craze on Wall Street, and the BuzzFeed deal was, at one point, slated to value the company at $1.5 billion while raising around $290 million in cash from investors. Bankers were hustling companies through these IPO-like mergers — a quick and relatively easy way to get billion-dollar-plus valuations (at least temporarily), all with less scrutiny from regulators or skeptical investors. (If this sounds to you like it would make for some bad outcomes, you’d be right.)
To get that kind of valuation though, the company needed to be bigger, reaching more eyeballs and offering a larger scale to advertisers. Or as Peretti told the New York Times in 2018, “A bigger digital media company” would “would probably be able to get paid more money.” In late 2020, BuzzFeed bought HuffPost. In June of 2021, Peretti made an even bigger move by announcing the acquisition of Complex, a site for rap nerds and sneakerheads, for $300 million. He said that the Complex audience “skews more male and more diverse than BuzzFeed,” and “will make our company stronger.” But to complete the deal, Buzzfeed needed to borrow money — about $150 million altogether. A handful of hedge funds provided the credit as part of an arrangement that essentially gave Peretti more than three years to figure out a way to make it all work. The bill would come due in late 2024.
“I’ve got it! Let’s borrow US$ 150 million from a bunch of Wall Street sharks so we can spend US$ 300 million buying a ‘media property’ aimed at gutter culture, then wrap the whole thing up as a SPAC and sell it to the rubes for US$ 290 million.” What could possibly go wrong?
Lots.
BuzzFeed — once a media-industry success story, a shining example of the social internet in action — now faces a very uncertain future. As a public company, almost nothing has gone to plan: The SPAC cash dwindled from almost $290 million to about $16 million; the social-media networks that BuzzFeed relied on for a large share of its traffic pivoted to different kinds of content; investors fled, driving down the company’s stock price by 98 percent and its overall market value to a tiny $37 million.
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The bonds are what’s known as convertible, which means that, if the company’s stock is trading above a given price — $12.50 in this case — at the time the bonds mature, they can be converted into shares with no repayment of the principal required. Unfortunately for Buzzfeed, with shares now trading at 26 cents, that scenario is functionally out of play. The bonds also pay the holders 8.5 percent a year and are redeemable for slightly more than the original loans — pushing the whole outstanding debt from the Complex deal up to roughly $200 million. This amount, as it stands, is due December 3.
Good luck with that, BuzzFeed.