Jon Erlichman interviewed me some time ago for his show. I ran into him at Collision where I gave a keynote presentation on the art of going viral vs building a media business through franchises. We chatted about Cheddar’s recent sale to AlticeUSA. He asked me if we too were on the market. I told him that Cheddar’s deal had boomeranged back some parties who’d previously shown an interest in us, but as always was unsure what I would do. However, given my focus on new initiatives (SoundMojo, MojoTV, Context, documentaries, etc), I realized that despite my interest in M&A, handling that myself wasn’t optimal. As such we mandated an advisory firm to manage our conversations with investors and companies who are impressed with what we have built and want to partner in our story’s next chapter. He asked if I’d go on the record and answer some questions. I did, here’s his article on Bloomberg BNN.
Every year we find ourselves in such talks. One time, things got really advanced and at the 11th hour, I walked away from five offers (3 of which were very attractive, and two of which I was basically sold on). But in hindsight, I shouldn’t have managed it myself. How I managed to pay a break-up and walk away from five term sheets instead of leveraging one off others for something palatable enough beats me. But, good lesson. Last year 9 private equity firms reached out to invest. This year we’ve had 5+ firms circle around us; it becomes a distraction. A banker could have filtered those for me.
Execs and entrepreneurs rarely admit missteps because their boards or shareholders hang them with their humility and confession. I have neither a formal board or outside shareholders, so maybe that’s why I over-compensate by being brutally harsh on myself. In fact, as I watched the Champions League final, I thought of last year’s match when – during halftime, natch – I hastily sent an interested party an email telling them I was going to balk, whereas a banker would have done a better job serving as buffer. The reasons why I balked were noble (a bit of a bait and switch: selling to a portfolio company – without a CEO at the time – instead of raising money from their investors, whom I’d met). But how I communicated it was poor. I get it. Let them play their “American psycho” role. I prefer being the diplomat and statesman. Without a banker, I had to do it all. That never pans out.
Since I’m all about transparency, and many industry friends and colleagues will see it & ask the consummate entrepreneur “why now,” I wanted to add some context.
1- Wannabe M&A banker: I studied finance and always wanted to do M&A before venturing into media as both an operator, columnist, interviewer, entrepreneur etc., so for the past 12 years, whenever I’ve had M&A convos with interested parties or groups I thought would make good strategic partners, I handled the discussions myself.
2- Interest, Intent, Action: We’ve had convos with over 50 companies in 10+ years who have shown “interest,” about 10-20 showed a realistic “intent” to pursue a transaction and I would say 5-10 showed “action” (LOI/Term Sheet). From 2006-2013, the deals didn’t happen because the would-be buyer backed out for a reason or another (i.e. MSFT & NBC divorced out of MSNBC, Belo turned around and sold itself to Gannett) whereas in discussions 2015-present, I am the one who turned offers down, preferring to stay independent.
3- Builder vs flipper: all factors being equal, my original idea was to see if we could be like Hearst/Conde Nast – a privately held media firm that leveraged the leading media of its era (print for them, web video for us) to grow into a diversified media company. That’s hard. It takes a lot of time.
4- The MTV/ESPN model: So many entrepreneurs and executives in the new media/content space talk about being the next Viacom, which I think is nonsense: Viacom is the next Viacom and to build that you need so much organizational layers that most new media companies who try to do that just crash under their own weight (i.e. Defy Media). Even those who have success like Buzzfeed, Vice or Vox eventually realize “hey, why did we [re]create so many of the old media companies’ bad habits?”
But, there’s merit for us to try to build an iconic brand of our generation, and I think WatchMojo has accomplished that. If indeed YouTube is replacing TV, we are where MTV/ESPN were in 1980s… I’m not sure if raising a ton of private equity capital is the way to go, I don’t think that MTV/ESPN would have grown as big as they did if they weren’t part of Viacom/Disney respectively. Reading I Want My MTV and Cable Cowboy changes my outlook; it’s more likely we reach our destiny in a larger organization who can focus on admin, support, infrastructure so we can lead on content, partnerships.
5- Sustainable vs Scalable: Speaking of PE firms, historically institutional investors don’t like content businesses, but they do consider and invest in media when they are big enough. We have scale. And last year, 9 private equity and growth capital firms contacted us as we reached 150 million unique viewers. But some of that was also due to the financial (cap tables, too much funding) and cultural (#MeToo) challenges that our larger comps like Buzzfeed, Vice, Vox faced. Thus, the PE firm interest ricochet’d to us. That all said, fundamentally investors focus on quick scale whereas I like sustainable things – and what scales quickly usually isn’t sustainable… and what is sustainable is usually not scalable overnight.
6- Sentiment changes quickly: Until Mashable’s fire sale, the mood was bullish. Mashable and the ensuing wreckage amongst companies like Mic soured the mood. Then Univision unloaded Gizmodo Media Group for a fraction of what they paid. Between late 2017 to early 2019, you could not pay someone to take over a digital media firm… but those companies had very unique issues. We remained profitable and grew our reach… even companies like Vice/Buzzfeed/Vox made the tough decisions in 2018 to right-size their org’s… but they have legitimate cap table challenges: what’s the exit there?
6- M&A success: (Function) demand vs supply. We seem to have a lot more interest than any other time in our history because suddenly, strategics or investors didn’t chase “shiny objects” with high top-line that were losing money, and suddenly they respected/coveted companies like ours that were well-run, profitable, and stable. Our 5 co-founders remain with the firm 13 years. Our retention is 90% amongst the core unit going back a decade years! Yes, we took a lot of risks in the past 2 years, but nothing was fatal. Finally, we have also started to work with more and more blue chip partners and sponsors: US Army, Netflix, Universal Pictures are just some of the companies who work with us in one capacity or another. Thus, if the theory is you can secure the best win-win deal when you have a lot of parties interested, this year is as good of a time as ever to be serious about a strategic alliance with someone who’s strengths/weaknesses/threats/opportunities are complementary to ours.
7- Recent Comparables Are Positive: Viacom’s acquisition of Pluto for US$340M and AlticeUSA’s US$200M acquisition of Cheddar have dramatically deals spiked inbound activity. I now get an investment bank calling me every week. It’s draining. I also get a lot more calls from PE firms. It’s flattering. But I now accept it & realize my limitations: I’m not a banker! For a decade, I’ve been the top executive in charge of operations but also been the chief dealmaker. It’s best to hire a bank. To quote a wise advisor I know: “I’m glad I did it once but wouldn’t do it twice!”
8- Global Interest: There’s something in the ground in Montreal. We are the next great media & entertainment export out of Montreal after Just For Laughs, Cirque du Soleil and VICE. It’s really flattering to have interest from north and south of the border, and across the pond, all the way from China.
9- The paradox of entrepreneurship & being independent: To quote someone who wanted to buy WatchMojo in 2011 and is now a good friend last time I was chatting to him about a possible sale: “Ash, you’re the ultimate entrepreneur… We will be sitting in some other hotel bar in another hotel talking about some other company that you’re talking to… I don’t see you ever selling!” But, the truth is, I’m not sure how independent I truly am… I have a wonderful team of colleagues, but we’ve built substantial global reach and invested a lot in organizational support but as the company grows in size, I find I am spending less time on my comparative advantages and real interests, and more on other things I should be handing off to a partner. So, we shall see.
10- Intrapreneur & Storyteller: When said and done, at 41, I just think that I am at a new phase in my life where I don’t need to the independent entrepreneur with zero financial support and outside governance. In an ideal world partner with a firm that lets me continue to run the business while serving as an anchor partner that helps us grow faster. I get to lead where I should and delegate where I must. Having launched our latest brand – Context, which looks at business through the lens of entrepreneurship – I am producing documentaries and would like to accelerate our growth plans around the world, having launched 30 channels globally in the past two years which have pushed our reach to 250 million unique viewers per quarter… and it just makes sense to finally let go of the strategic convos and bring in a firm who specializes in that.
Why does everything in my life turn into a top 10 list? – or the obligatory companion video 🙂