$83M Hot Ones Sale // Politics in Creator Economy and Valuation Estimate
RockWater Roundup
RockWater analysis to make you a better investor and operator. Today we discuss the sale of Hot Ones to a buyer consortium including its founders and Soros Capital, the deal logic, valuation estimate, and how political investors are making moves in the creator economy.
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Buzzfeed just sold Hot Ones for $82.5M.
I summarize the deal details, and offer insights on (1) revenue and EBITDA valuation multiples and (2) increasing political investment into the creator economy.
Aright, let’s break it down…
—TARGET: First We Feast—
OVERVIEW
- Food-focused digital publisher
- Launched 2012 as food blog as offshoot of Complex Media
- Founded by Chris Schonberger
- Launched Youtube channel in 2014
- 27M online followers
- 4B YouTube views
- Known for Hot Ones franchise
FINANCIALS
- $30M annual revenue
- Revenue primarily from brand and licensing deals
- Profitable
SELECT SHOWS
- Hot Ones
- The Burger Show
- Heat Eaters
- Pro Movies
- Versus
“HOT ONES” HIGHLIGHTS
- Show launched 2015
- 14M YouTube subs
- Known for A+ celeb guests, deeply researched questions
- 2 daytime Emmy noms
- Line of Hot Ones hot sauces
- Launched a game “Truth or Dab”
- Collabs with national retailers and restaurants like McD’s, Panda Express
- In talks with Netflix for live content series
CAPITAL MARKETS HISTORY
- 2021 parent co Complex sold to Buzzfeed
- 2024 old to private buyer consortium
—TARGET OWNER: Buzzfeed—
OVERVIEW
- Digital media and news company
- Launched 2006
- Founded by Jonah Jonah Peretti, John Johnson
- Started out as digital media company tracking viral content
- Now a diversified publisher of viral articles, listicles, quizzes, memes, news, video content
- Biz model: brand partnerships, ad sales, licensing, programmatic, affiliate commerce, more
- Has Tasty food brand
- News division won Pulitzer in 2021
STOCK PRICE
- $3 stock price as of 12.19.23 (down from $40 in 2021)
- $114M market cap
- Jun 2021 peak valuation was $1.5B
FINANCIALS OVERVIEW
- 4Q continuing ops revenue of $54-58M
- 4Q continuing ops adj EBITDA of $4-9M
- 3Q YTD revenue of $156M (pre FWF sale)
- 3Q YTD adj EBITDA of $2M (pre FWF sale)
CAPITAL MARKETS HISTORY
- 2021 bought Complex for $294M
- 2024 sold Complex to NTWRK for $114M (excluded FWF)
- 2024 prez candidate Vivek Ramaswamy amassed 8.9% stake
—BUYER: Soros Fund, Crooked Media, Mythical Founders—
BUYER CONSORTIUM
- FWF founder Chris Schonberger
- Hot Ones host Sean Evans
- Rhett & Link’s Mythical Entertainment
- Affiliate of Soros Fund Management
- Crooked Media
- Additional investors to be announced
GEORGE SOROS BREAKOUT
- Hungarian-American immigrant who survived Nazi occupation in WWII
- Known for founding hedge fund Quantum Fund in 1973
- Estimated net worth $7B
- Donated $30B to his philanthropy, the Open Society Foundations
- Reportedly largest political donor to Democratic party and liberal / progressive causes
- Son is Alex Soros, current chair of Open Society Foundations, and increasingly active in politics
OTHER SOROS MEDIA INVESTMENTS
- 2022 minority stake in Crooked Media
- 2023 teamed up with Fortress to buy Vice out of bankruptcy for $350M
- 2023 partnered with Vox to invest in NowThis via Accelerate Change vehicle
- 2024 $415M into Audacy, takeover post bankruptcy (large radio station owner)
- Main backer behind Accelerate Change, a large BIPOC digital media network
- Much more…
—DEAL DETAILS—
OVERVIEW
- Announced 12.12.24
- $82.5M purchase price
- All-cash deal
- Schonberger and Evans will retain ownership (unclear if rolling over equity or getting granted new equity)
DEAL ORIGINS
- Supposedly being shopped for ~1 yr for $70M price tag
- Michael del Nin helped Buzzfeed go public in 2021. He now leads Soros’s media investment unit
VALUE PROP
- Make FWF a self-run multi-platform media company and content studio
- Enable FWF expansion to new platforms, live events, talent acquisitions
- Become destination for “pop culture-obsessed audiences”
- Helps Buzzfeed pay down $89M of debt, from balance of $120M
- Part of Buzzfeed shift to sell off lower margin content, and focus on high-margin, tech-enabled revenue lines: programmatic advertising and affiliate commerce, and launch AI-powered experiences
- “BuzzFeed remaining businesses — BuzzFeed, the pop-culture site best known for listicles, quizzes, and celebrity news; HuffPost, the left-leaning news site; and Tasty, its food vertical — will power the company, along with what CEO Jonah Peretti calls “new AI-powered interactive experiences.”
- AUTHOR NOTE: I don’t see how Buzzfeed is a viable standalone public company after this sale, nor what its growth prospects are. I see no evidence of success of new “high-margin businesses”
POST DEAL OPS
- Schonberger will be top exec
- Evans will be Chief Creative Officer and continued HO host
- Other key leaders and team will remain with company
WHAT ELSE I FIND INTERESTING & DEAL INSIGHTS
My estimate of revenue and EBITDA valuation multiples …
There are press reports that FWF does $30M in annual revenue. I assume EBITDA margin is in the 10-20% range. Likely company has been inefficiently run under Buzzfeed over past few years, since Buzzfeed’s publicly reported financials show continued decline in company performance. Also, FWF likely has many allocations in its P&L from parent co for back office and other shared services. I bet standalone the company will have a path to much higher margins.
At $82.5M purchase price and $30M revenue, that’s a 2.75x revenue multiple, which I’d assume is on an LTM basis.
At 20% profit margin, or $6M EBITDA, that’s a 13.75x EBITDA multiple.
At 10% profit margin, or $3M EBITDA, that’s a 27.5x EBITDA multiple.
Of note, I previously estimated the valuation multiple for the sale of Complex to NTWRK. Complex reportedly did around $100-150M of revenue and was sold for $114M (all-in price). That implies a revenue multiple in the range of 0.9x to 1.1x. I also estimated EBITDA at around 10% (which declined significantly after Buzzfeed ownership, supposedly was above 20% pre sale), which would imply an EBITDA multiple of 7.6x to 11.4x.
My guess is that the FWF sale multiple was likely on the higher end. Since FWF was a premium asset within the Complex portfolio, I can see it going for 10-15x EBITDA. If one were to normalize FWF margins for a standalone scenario after being untangled from Buzzfeed, the EBITDA margin could be higher, and the valuation multiple range could be lower.
That speaks to the opportunity for the new buyer consortium, on top of investing into the business for growth as I described in the points about the deal value prop.
Increasing interest in creator economy from politically oriented investors…
Soros has long been an active and politically-oriented media investor. See my media M&A detail that I highlighted above. Now they’re buying one of the most prized YouTube-native IP franchises in FWF and Hot Ones.
This is party of a growing theme of politically-oriented buyers and investors increasingly leaning into digital media, and specifically the creator economy.
Semafor recently reported that Fox is talking to political media acquisition targets like Red Seat Ventures and The Daily Wire, which are digital-native and lean conservative. Fox might also be looking at audio networks like Audioboom and iHeart.
This also makes me think of Highmount’s $100M investment into Dude Perfect, which I wrote about here (I also pasted an excerpt below).
Makes sense.
If you want to influence the masses, you need to go where modern audiences are. And modern media channels, particularly social media, podcasts, and influencers x creators, have an outsized impact on reaching consumers and influencing them. From their purchase decisions, to their voting behavior.
Brands and marketers have made the move.
Newco launchers have made the move.
And now politically-affiliated parties and investors are starting to pay a lot more attention and put their dollars to work in the creator economy as well. Particularly after the learnings from Trump’s presidential bid win, which is being described as the “first podcast election”.
Welcome to the party new friends. Maybe we’ll see more of you at RockWater-hosted exec events in 2025 😉
Lastly, as I was doing quick research on the deal, I found this quote from Fortune interesting…
“Hot Ones” turned down an interview request from Vice President Kamala Harris’ team during her presidential campaign because the show did not want to “delve into politics,” Harris campaign strategist Stephanie Cutter said after the election.
Might that change after new ownership from Soros?
Maybe.
The new Soros ownership is also noteworthy when you consider this insight from Business Insider…
Earlier this year, Ramaswamy bought up a 9% stake in BuzzFeed and told Peretti he should bring a group of conservative media types onto BuzzFeed’s board and turn BuzzFeed into a Twitter-style platform. Then he suggested that when BuzzFeed’s debt came due this month, the company would be unable to pay it back and that somehow Ramaswamy would end up controlling the company. That doesn’t seem like an option anymore.
Yes, that sounds quite right.
Alright, that’s enough deal analysis for one week. I’m taking a much needed vacay, so there won’t be another M&A breakdown for at least the next couple weeks. See you in January!
…BTW, for some final “final” reading, below is the excerpt from my analysis on the $100M investment into Dude Perfect…
“Dude Perfect has a faith-based mission: “We’re about giving back, spreading joy and glorifying Jesus Christ”.
Three members of Highmount’s leadership, including their two founders, have faith-based affiliations per their website bios.
Makes me wonder who the LPs are in Highmount – could be parties who have faith-based investment mandates, where financial ROI may not be the only metric for success.
Think church pension funds, religious groups, HNIs, and family offices.
Of note, I’m not personally aware of much PR or press coverage of faith-based organizations investing in the creator economy. This could signal a new trend worth paying attention to, or simply that more press coverage is needed.
I mean, one could say that religion is the OG of the creator-based economy…but that’s for a separate blog post.
And speaking of LPs, it’s also worth noting that Highmount’s CEO and COO are both former Koch Industries (“KI”) execs. KI is the 2nd largest private company in the US (after Cargill) and is estimated to do over $125B in annual revenue and employ over 120,000 global employees. KI CEO Charles Koch and his political network are also major donors to Republican and libertarian causes.
KI is based in Wichita Kansas, and Highmount’s website lists offices in both Wichita and NYC. Makes me think that KI or affiliated parties could be a meaningful LP in the new Highmount fund, and thus have a meaningful influence on Highmount’s future investments.
Again, I can’t confirm any of this, as I’m just speculating.
I’m the founder of RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.
DM me on LinkedIn or email me chris @ wearerockwater dot com
