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Communiqué 36: An African $500-million media exit
What does an African digital media company need to do to sell itself for $500 million?
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In July 2022, Industry Dive, a business media company targeting corporate decision-makers, got acquired by Informa, a UK-based events firm. According to reports, the acquisition cost $525 million, roughly 5x Industry Dive’s annual revenue of $100 million.
A month later, Axios, an American political and business news website, agreed to be acquired by Cox Enterprises, a global communications conglomerate, for $525 million, the same as Industry Dive. This agreement also happened at roughly five times Axios’ projected revenue for 2022.
Earlier in the year, The New York Times acquired the online sports news company, The Athletic, for an all-cash deal valued at $550 million, roughly nine times the latter’s $65 million revenue.
While these deals happened under very different circumstances, I haven’t stopped thinking about what it could look like in Africa. What does an African new media company’s road to $100 million in annual revenue look like? What if one could get acquired at or build up to the same valuation?
This is a thought experiment. For this experiment, we’re creating a company called Cocoa House Media, or CHM.
The making of an African $500-million media company
Cocoa House Media began operations in Nigeria, and its founders want to build a new media company worth over $500 million by 2025. To make this happen, they need to meet a few criteria. Let’s walk through them.
1. The company has to be truly pan-African
$100 million in revenue in Africa’s three largest economies -- Nigeria, South Africa, and Egypt -- amounts to ₦43.4 billion, R1.82 billion, and £1.96 billion, respectively. None of these figures is impossible to reach, but the prospect of generating them only in one market isn’t as attractive as generating $100 million across multiple markets. It’s unlikely that a new media company operating in one country will be attractive enough for this type of exit.
Focusing only on one market (say, South Africa, Nigeria, or Kenya) makes it difficult to justify future growth prospects, given how unstable the continent’s markets and government policies can be.
Let’s take a cue from some of Africa’s highest-valued startups -- Flutterwave, Jumia, Paystack, Paga, and Wave, to name a few. All are expanding rapidly into multiple markets or plan to because hedging their bets solely on one country handicaps them in the long run.
We can look to one of Africa’s biggest media companies, Multichoice. It’s based in South Africa, perhaps Africa’s most vibrant media market. But it must reach and operate across the continent to continue its dominance. South Africa generated roughly $2.02 billion of Multichoice’s revenue for the year ended March 31, 2022, but nearly 59% of its 21.8 million subscribers are spread across the continent.
The CHM founders would need to expand into as many African markets as possible. They’ll probably roll out in South Africa, Kenya, and Ghana. Then Francophone Africa and North Africa, with Côte d’Ivoire, Senegal, and Egypt in view.
2. They need significant funding
Building a pan-African media company requires significant capital, and our founders must decide which funding route is best.
Do they look for venture capital or angel investments? Do they take out loans or patiently crowdfund from their community? Each option has its upsides and downsides, but they eventually decide to go with a mix of venture capital and some angel investment. They think both options give them the highest upside and the most bearable downsides.
Nevertheless, they know that injecting venture capital into a media business significantly impacts how the company will operate and grow. They know that “when a new media publisher raises venture capital, it can no longer operate strictly as a publisher, especially in Africa, where the market realities are much more brutal. The expectations are different... Venture capital isn’t just another funding model for sustaining a business. It works with the underlying assumption that the business can generate returns in the multiples (7-10x), hence the high level of risk involved (the business owner typically isn’t liable if the business fails).”
With this possibility in mind, the founders are prepared to design their operations to generate most of their revenue at zero marginal cost.
3. Not relying on single revenue sources
Typically, media companies rely on revenue generated directly or indirectly from the type of content they create (which is why they are media companies in the first place). This includes revenue models like advertising and sponsorship, which are directly connected to audience size and quality, and subscription, which is tied to the audience’s spending power and willingness to pay for access to information.
In Africa, subscriptions are hard to sell, especially with how low disposable income generally is. Furthermore, while advertising continues to be the biggest revenue source for most media companies, there’s intense competition from Big Tech and social media platforms. Some media companies try to make money from research and custom reports, but anyone attempting this on the continent will tell you it is backbreaking work.
A much better strategy for our founders will be combining three to four revenue sources, including a model that can scale beyond manpower. This means they must design their company so that they don’t need more employees or office space to create more products that people are willing to pay for.
This could include building a unique platform serving one or more industries, a specialised body of knowledge that requires constant updates, or a valuable network that people across all the markets can access. Examples to draw inspiration from are Bloomberg Terminal and Axios HQ.
4. Focused on niches, not mass audiences
Not all audiences are valued equally, and neither are all topics. There is a minimal strategic advantage in trying to be everything to everyone everywhere. Instead, it makes more sense to build for an audience with high economic capacity and significant social capital, and to build a brand people interact with for distinct reasons.
Our founders know that building a company serving a mass audience across all the markets doesn’t help their cause. They have better odds of reaching their goal if they focus on specific niches in specific markets. They know that focusing on these niches makes their company’s brand more valuable in the long term, making them more attractive to prospective buyers and sending strong signals to the market.
A great example of this is Politico, which got acquired in 2021 by Axel Springer for $1 billion, a 5x multiple of its $200 million revenue. Politico was made more attractive by its niche (politics) and its audience (“those who have a political, professional or financial stake in politics and policy”).
If you run a media company with several niche publications that 100,000 people with a lot of money and power read religiously, you’re better positioned than a company building one mass-market publication with 5 million readers.
What does an exit look like?
Now that we’ve laid out the criteria our founders must meet to make their exit possible, we need to know the prospects. An IPO could be an option, but that depends on how attractive the company becomes to the public market.
Given the inspiration for this thought experiment, let’s dig deeper into a possible acquisition. Who has the resources and incentives to make this kind of deal? Two sets of companies could be incentivised to make this type of play: telcos and international media groups.
Telecommunication companies like Econet Global and Safaricom have attempted media plays in the past, with Econet Global trying to build a streaming service (Kwese) and Safaricom launching Baze, a mobile-first video-on-demand service. The MTN Group has invested in media development programmes and partnerships to build video streaming services. Globacom (with Glo TV) and Airtel (with Airtel TV) have also attempted new media forays.
Most of these are video-streaming ventures that could help telcos expand their reach and get more people to use their services. None has brought outstanding success. Still, this indicates a willingness to explore media plays that could help the companies capture new markets and high-value customers. Acquiring a company like CHM could be compelling.
2. International media groups
Companies like Axel Springer, Ringier, and Bauer Media Group could be potential exit options on the horizon. Ringier has previously ventured into the continent through Pulse Media. Still, there could be further opportunities for expansion in the future, particularly if the business already meets all the necessary criteria for an exit. Axel Springer could also be tempted to explore options on the continent if the chance arises.
Naspers, the South African Internet holding company, has invested in media ventures on the continent with mixed results. Still, it continues to operate Media24 and could be a potential exit option. Oddly, the Multichoice Group could provide an outlet as well as it continues to diversify its assets and invest in new types of businesses, including sports betting and gaming.
For CHM to reach a $500 million exit, they’d have to make up to $100 million a year across 5-6 African markets and with a mix of 3-4 solid revenue sources.
Multichoice has proven that this is possible in Africa, and there could yet be a few more examples on the horizon. Some have been around for a while, and others are just starting. A lot will happen in the next five to seven years, much of which will follow this template.
Some important announcements
1. We’re now fundraising for CMQ Media
Communiqué started as a newsletter product, but our progress has shown that it can be more.
Building Communique has revealed opportunities in two areas. First, there is an opening for a media company serving knowledge workers interested in Africa. Second, there is a need for a media company that provides actionable insight for businesses to succeed.
We’re filling this gap in media, and we will do it in other industries with high visibility and high capital spending.
If you’re interested in learning more, please send me a message: david[at]cmqmedia.xyz.
2. Creators’ Circle 3 is here!
We’re having the third edition of Creators’ Circle in Lagos on Friday, October 21, 2022. Register here, and see you next week!