‘It can be demotivating’: Digital media’s all-stock deals are the new normal

Digiday 09 Oct 2019 04:01

Those who dreamed of joining a startup media company that rockets to an IPO or a cash-rich exit are waking up to a less pleasant reality: The hoped-for pot of gold probably looks more like an all-stock merger that pushes off any payday, possibly in perpetuity.

With banks recently more reluctant to lend, venture capitalists are no longer interested in buying media companies that are no longer growing quickly, and for few cash-rich players interested in buying media companies, the all-stock deal is the last, best option for publishers and their investors, even if they can be dismaying to target companies’ employees as well as its backers.

But for target companies that have raised considerable sums of money, all-stock acquisitions often mean that whatever common stock executives or investors held, at the target as well as at the acquiring company, is now worth much less. That can make it harder to keep the talent they have, and it also makes it harder for other media startups to dangle those stock options in front of talent they might try to lure away from bigger, more established rivals, particularly those outside of media.

In a perfect world, a target company would prefer a cash offer. But recently, cash from banks is harder to come by, according to Aaron Solganick, the CEO of investment bank Solganick & Co. And with both buyer and seller facing immense pressure, both in the market and from investors, these deals are typically transacted using common stock, whose holders can only redeem it after investors with preferred stock have been compensated first.

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