For a good portion of 2021, it seemed as if SPACs, or special purpose acquisition companies, had fallen out of favor. The Biden administration imposed disclosure rules that chilled new entrants to the market, and the glut of new SPACs formed in 2020 and early 2021 gave companies considering a merger the ability to be picky about their partners.
“There was record issuance in the first quarter, and then there was a big slowdown with the SEC taking a closer look at some of the accounting,” Cowen CEO Jeffrey Solomon told CNBC on Dec. 2. But with those disclosure regulations now better understood, SPACs are making something of a comeback, and the media and entertainment sector appears particularly ripe for the financing vehicle. “There have been a bunch of deals that have gotten done in the back of the year,” Solomon added, noting that “over 100” deals were made in recent months.
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Two finance sources tell The Hollywood Reporter that they think the SPAC space is about to heat up, driven by the potential for regulatory gridlock elsewhere. The Biden administration filed to block the sale of Simon & Schuster and is slow-walking other M&A agreements, citing the massive influx of deals this year.
That could become an opportunity for SPACs if some media or tech giants decide to slim down … or are forced to by regulators. Consider Starz. The streaming service and pay TV channel has 30 million paid subscribers, and owner Lionsgate said last month it was exploring its options. Lionsgate vice chairman Michael Burns told analysts that the decision was driven by “the opportunity to potentially unlock significant shareholder value under a scenario where investors have the ability to value our studio assets and Starz separately.” He added: “Recent transaction multiples in the media space give us confidence that exploring alternate paths is prudent.”
One source familiar with the talks said Lionsgate has been approached by at least one SPAC seeking to spin off Starz as its own public company. (Lionsgate declined comment.) Or look at WarnerMedia, in the midst of a merger process with Discovery Inc. Current owner AT&T put WarnerMedia’s video game division on the market in 2020 but then decided to keep it at the urging of CEO Jason Kilar, a source familiar with those talks said.
Discovery CEO David Zaslav has not expressed a similar enthusiasm for gaming, and AT&T says the WB Games studio will be split up when the merger is complete, keeping some of its studios with the telecom giant and others with Warner Bros. Discovery. A finance source says the studio or its assets (which include studios like Rocksteady and NetherRealm) would be ripe sale targets.
But if some of the video game giants are unable or unwilling to buy due to regulatory concerns, a SPAC spinoff could be an easier sell. The same is true of Starz, which may find it difficult to sell to a larger tech company or another entertainment firm if there are concerns over regulatory approval.
But entertainment-focused SPACs also are seeing renewed enthusiasm from investors. Consider United Talent Agency’s new SPAC, which counts former Nintendo president Reggie Fils-Aime as its chairman and former CBS Entertainment chief Nancy Tellem as a board member. That SPAC — which closed a $230 million initial public offering on Dec. 6 — is hoping to merge with a company in the gaming or creator economy space, two fast-growing sectors with a bevy of viable companies.
Then there’s Argus Capital, the SPAC founded by former top CBS executives including ex-CEO Joseph Ianniello that is circling companies in the media and entertainment sector. SPACs like Argus could become landing pads for wayward divisions of traditional media companies should they choose to slim down and focus on streaming.
However, the SPAC space remains risky.
Digital World Acquisition Corp, the SPAC that plans to take Donald Trump’s media and technology company public, is facing investigations from the SEC and FINRA over disclosures, though a $1 billion PIPE investment means that Trump’s company (to be led by Devin Nunes) will have at least that much cash when it goes to public.
Or look at the Jonah Peretti-led BuzzFeed. The digital media company completed its merger with the SPAC 890 5th Avenue Partners on Dec. 3, acquiring Complex Networks as part of the deal. However, SPACs allow shareholders to choose to redeem their shares for the IPO price if they don’t like the deal.
Despite the SPAC raising more than $250 million, BuzzFeed was left with only $16 million after almost all shareholders chose to redeem their shares. Combined with the $150 million in convertible debt PIPE financing it lined up, BuzzFeed went public Monday after raising only $166 million, about a third of what it originally planned.
This story appeared in the Dec. 8 issue of The Hollywood Reporter magazine. Click here to subscribe.
