Axel Springer Will Spend $343M To Acquire Business Insider, Proving It's Good To Be A Digital Media Startup In 2015

BI AxelAxel Springer will acquire Business Insider in a deal that values the publisher at $390 million, the companies said Tuesday.

The German media company bought 9% of BI back in January, and the new $343 million deal will bring its total stake to 97%. That earlier deal placed the value of BI at $200 million, so the sale price has almost doubled the worth of CEO Henry Blodget's business-focused digital media startup in eight short months.

Axel Springer said it made the deal for strategic reasons. Snapping up the digital pure play will allow it to branch out globally, add English-language offerings and get a better foothold in digital. It also makes it the world's sixth-largest publisher in terms of reach.

The idea of a strategic acquisition, not a financial one, aligns that what those in the media industry said when AdExchanger reached out to discuss the deal, then unconfirmed, last week.

“A lot of companies want exposure to parts of related industries and sectors where they have limited exposure,” said Brian Wieser, analyst at Pivotal Research.

But that often means paying a premium.

“There’s no way to rationalize that [price] based on the revenue,” said Martin Nisenholtz, a consultant and Columbia University professor who started The New York Times’ digital operation, referring to a previously even more astronomical valuation of $560 million. “What you’re looking at is an insurance policy.”

The sky-high valuations of these media startups – BuzzFeed is now valued at $1.5 billion, Vice as high as $4 billion – says much more about the opportunity (and threat) of digital than its real worth.

Traditional media companies’ acquisitions and investments in digital pure plays are strategic investments, not financial ones, Nisenholtz said. They can enter growing digital businesses, and hedge their bets against declines in traditional channels.

What is the strategic angle in BI's case?

Consider that Business Insider has seven different editions of the website: one in the US, one in the UK and five in Asia. An international company like Axel Springer might be interested in leveraging the Business Insider brand to develop more editions around the world, Nisenholtz predicted.

And, in fact, Axel Springer will add a German edition in Q4 of this year.

“The Huffington Post has gone out and used the [content management system], the selling processes and distribution in different countries,” Nisenholtz said. The same practice will expand Business Insider’s reach and turn it into a global brand.

Business Insider’s acquisition is only the latest in a series of investments and acquisitions of digital pure plays by larger media companies.

NBC Universal made a $200 million investment in Vox and a $200 million gamble with BuzzFeed, and A&E Networks took a $250 million stake in Vice. On the smaller side, Elite Daily sold for $50 million to the Daily Mail earlier this year, and Scripps Networks Interactive led a $50 million investment in Refinery29.

The media companies that have garnered the highest valuations – Vox, Vice, BuzzFeed and now Business Insider – haven’t just built audiences, they’ve built brands. That combination of brand and scale, along with a technical infrastructure, is what will give the best media brands a sustained competitive advantage, predicted Troy Young, president of Hearst Magazines Digital Media.

And the frenzy of investment and skyrocketing valuations will likely increase before it dissipates.

“Once you start to create scarcity, that compels investors to act, which increases pricing,” Wieser said.

Additionally, BI, like many of its digital brethren, has a growing slate of video content, allowing it to angle for TV media dollars.

There is also a "content creation" angle for Axel Springer's services offering to brands.

“The ability to build big digital audiences is going to be important as a marketing function for premium content,” Young said.

Being able to create and distribute video content that reaches millions of views, for example, will set apart the great media companies from the middling ones.

1 Comment

  1. Any ideas what kind of revenues they are generating on an annualized basis? Trying to get a sense of the revenue multiple valuation. Thx

    Reply

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