Accuracy in Media

BuzzFeed’s deal to go public as a company was markedly less successful than the company might have hoped. The shareholders gave them a 94% rejection rate by one measure. Which isn’t a grand gesture of confidence in BuzzFeed’s prospects.

This all depends upon a technical detail of how BuzzFeed became a public company. As has been the fashion this past year or so, it used the SPAC (special acquisition company) route rather than the more traditional initial public offering, or IPO. The IPO has its downsides — it usually costs in the region of 7% of the money raised, and the examination of the company by the lawyers and the SEC is exhaustive.

A SPAC is a company that simply exists on a stock exchange already. It’s an empty shell. The promoters list it, folks buy stock in it almost always at the price of $10 a share. So, there’s a pot of cash and a listing available for a merger with a real business at some point. Perfectly reasonable and acceptable idea and long used in other markets even if it’s new-ish-ly fashionable in New York.

The one little problem. The subscribers to the SPAC don’t know what is going to be bought with their $10 when they buy in. So, when the deal is about to be done, they have to be given the opportunity to back out of the deal. At least a few do in near every deal, and rates of 20% of investors aren’t unusual.

BuzzFeed was clearly a deal that just didn’t attract. Only 6% of the SPAC subscribers stayed in – that’s a 94% rejection rate of the idea that someone would like to be a BuzzFeed shareholder.

We think that’s impressive, even if it’s not the sort of record BuzzFeed would like to have. Instead of the $250 million they were thinking they might get from the deal they got $16 million. Shame, eh?

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