Buzzfeed SPAC suffers as investors pull funds

Yahoo Finance Live anchors discuss how investors are pulling funds from Buzzfeed's SPAC before it goes public.

Video transcript

BRIAN CHEUNG: Well, you know, we haven't talked about SPACs today, but one thing I want to point out is a news item that we got from a number of outlets detailing BuzzFeed and some of the issues that they've been facing. I can see the headline already-- you won't believe what happened to this company trying to raise money on the public markets.

But apparently, they only raised about $16 million from its public listing after the 890 Fifth Avenue partner SPAC apparently had about 94% of its money raised withdrawn by investors, although it's to be fair, BuzzFeed also raised about $150 million in convertible note financing. But all of this is kind of calling into question the stability for a company that tries to go public via a SPAC, as opposed to maybe just an IPO or a direct listing. But obviously, if you're BuzzFeed, Julie, not happy to see this news.

JULIE HYMAN: Yeah, I think there's sort of two trends that are at play here. One is the waning of the SPAC trend. And I think we also saw evidence of that yesterday after WeWork was forced to restate because of accounting changes in irregularities that were done by the company that acquired it, the SPAC that acquired it, BowX. That was just one example of the waning appetite for SPACs.

And then on the other hand, you have what's been going on in the media business as well. And that's sort of changing landscape. And on that side, BuzzFeed has also had to contend with some employee dissatisfaction. And in fact, while the vote was going on, while the SPAC vote was going on yesterday, BuzzFeed employees, who are unionized, staged a walkout. They talked about that they're not getting the salary satisfaction that they would like in negotiations with management. So there's sort of a couple of different things going on here.

But according to the Wall Street Journal, the BuzzFeed completion could happen as soon as Monday and could begin trading. So we'll get another view on what that combined company would look like. By the way, yet another example, of course, of what's been going on in the SPAC universe is the debut of Grab yesterday. As Sozz talked about earlier, there was a big decline in that stock. It's bouncing back a little bit today. But, you know, it's just interesting here. That is a huge entrant. It's the biggest SPAC deal ever. And it sort of landed with a thud, Sozz.

BRIAN SOZZI: Yeah, well, outside of Grab, speaking of entrants, and, you know, recently, I've been talking to a lot of folks at the well-known activist firms. And I think the next shoe to drop here the first six months of next year, a lot of these activist firms are going to start attacking the SPAC companies. They essentially have a large pool of now publicly traded companies where the argument could be made that many of them shouldn't even be public to begin with.

But I think these activist firms are starting to crunch the numbers on a lot of these companies and find opportunities in the space where companies do have-- they have future potential, but it's not being reflected since they have gone public via these SPAC deals. I think that is the next shoe to drop here. And you can have some pretty, I think, interesting fights on the hands of a lot of companies coming up very soon.

BRIAN CHEUNG: Yeah, and just to kind of add quickly, what's interesting about SPACs-- and by the way, you can catch our Yahoo U on exactly what a Special Purpose Acquisition Company is. But it kind of illustrates how if you're a company that's trying to go public via SPAC, which has the attractiveness of not having to go on the roadshow, you don't have to go across the country, around the world, trying to sell your shares before you hit the public market and get an underwriter to help you out through that whole process. You can just go to one whole shop and just ultimately have the whole SPAC buy the company entirely.

Well, when you already do that, you're giving up some of the premium because the SPAC, because of the fact that it's the SPAC that actually does the roadshow to collect the investors, they're doing the dirty work of trying to find you a right price. So you're to get a lower price, in many cases, when you are publicly listed than you would if you tried to go through your own way of doing your own IPO.

So companies are maybe considering going public are looking at that and already seeing that as the downside, coupled with this new trend, which the Wall Street Journal detailed where, since the end of July, the average SPAC lost about 60% of its money before the deal goes through. That's something that might be kind of disincentivizing firms maybe through 2022 to go public via this route.

JULIE HYMAN: Yeah, that would seem to be, most definitely.