Athletic, Axios talking merger?

Well, that's dissapointing.

Not so much because it says anything about the viability of The Athletic. But the whole SPAC craze is gimmicky crap, in which everyone and their uncle is taking advantage of a massive asset bubble to cash out at ridiculous valuations.

The major issue is that once Mather and Hansmann walk away ridiculously rich men if a SPAC deal happens, you then are going to have a publicly-traded company at a valuation it is never going to be able to justify in this lifetime. Which will put all kinds of pressures on the company that are likely going to be contrary to its long-term health. At first, it will feel awash in money to try to grow and expand. But unless it can actually show profitability and a return on all of that capital, it will likely get the company the "need to cut costs" treatment down the road.

So far The Athletic has ridden a lot of VC money to get it to where it is. It isn't profitable, and in the grand scheme of things, its revenue is piddly. At the same time, it has attracted a million or so subscriptions at the price point they are offering it at, offering a tease of there being something viable.

In the bubble environment of the last 10 years, it has been relatively easy to raise capital or borrow insane amounts of money and live off of it. The Athletic hasn't been the most ridiculous example of that, but without money being so loose, it would never have been valued anywhere near where VC money has had it.

With the monetary madness we embarked on when the pandemic hit, it has now ushered in these ridiculous SPAC deals. Businesses that don't earn a thing, that are massively in debt, etc. are being given capital at even batshit crazier valuations. There is a lot of survival of the unfittest going on. When the craziness ends, a lot of these companies are going to end up going bust. And the ones that are actually viable (which I hope includes The Athletic) are going to be operating in a much tighter environment in which every penny matters, especially given the valuations they have fallen from.

It's unrealistic for me to have expected this. There is too much money to be had from VC and from a SPAC / going public deal. But the best thing for the Athletic would have been to raise much less money and try to grow slowly, proving the concept along the way and growing organically from cash the business generates. When you try to grow quickly -- and worse, if you overestimate how big the business can be -- you put pressure on the business that has the potential to sink it, because the capital or borrowed money you raised doesn't offer the same patience.

 

This is me spitballing, because I don't know the operations of either of their businesses well. But intuitively, the reason to combine wouldn't be to rename or rebrand anything. They both do online journalism, but that is about where the similarities end. It would be to get scale. How that scale works -- aside from the obvious technology, back office economies of scale -- is always more nebulous than the talk of it sounds when companies talk merger. Which is why this is mostly about the two of them together being big enough to create hype around a SPAC.

I feel bad being cynical about it, but the reality is they have each gone to the venture capital market multiple times and are past their Series C funding rounds. At the valuations they were getting, the ability to keep raising money that way has dried up. I believe Axios even had to go to the debt markets because of that. At this point, if they need fresh money, the public markets are what is left for them, and right now a SPAC is much easier than doing an IPO and will likely get you a crazy valuation in the runaway speculative environment we are in. I am sure the calculation is that doing that alone will get The Athletic an X valuation, whereas adding Axios to the mix will get a multiple of X.