August 27, 2021

Breakingviews: Axel Springer redefines trophy news asset

by Breakingviews.

Axel Springer is ramping up the profile of its shopping spree. The German publisher owned by Friede Springer, Chief Executive Mathias Döpfner, and private equity firm KKR is adding Politico to its growing portfolio of U.S. properties. The political news organization is a startup by traditional standards, and it punches above its weight in the Beltway and beyond. But Axel Springer is paying a pretty penny compared with other deals for traditional media.

The media company said on Thursday it will acquire Politico and its units from American investor Robert Allbritton. Founded in 2007, the organization almost immediately shook up the establishment with buzzy, fast-breaking news. The news group ropes in approximately $200 million in annual revenue in a mix of advertising and professional subscriptions. It is profitable, too, but that still makes the $1 billion splashed out by Axel Springer, according to the New York Times, a tad excessive.

A valuation of 5 times revenue is more than what the $8 billion New York Times is worth at 4 times forward sales. It is in the stratosphere compared with what Jeff Bezos paid in 2013, representing under 1 times revenue for the Washington Post. And it is even more than the some 3 times that a special-purpose acquisition company is paying for BuzzFeed, a deal announced in June.

There is a method to the frenzy. Axel Springer picked up Business Insider in 2015 for $442 million – at an eyepopping 13 times revenue. It kicked the tires of the Financial Times before Nikkei snapped it up for $1.3 billion in 2015. The common thread among these publications is they take in subscription revenue or at least have the promise of getting readers to pay.

That contrasts with other new media startups like BuzzFeed, which acquired HuffPost. Both shot onto the digital news scene but still rely mostly on advertising. In that sense, there is some safety in Axel’s splurge. Its strategy more closely mirrors that of the old school rags that command a premium price from readers.

Politico isn’t saddled with legacy costs like newsprint, but it doesn’t have the history or the pedigree of newspapers that have been around for more than a century. That makes the printed price for a trophy asset a little scarier to see.

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