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Insider trading

29 September 2015 By Jeffrey Goldfarb

Business Insider boss Henry Blodget is living up to his company’s name. He has struck a deal to sell the business and tech news website to German publisher Axel Springer at a $442 million valuation. That implies an implausibly long run of improbably fast growth. The lofty expectations evoke Dresdner Bank’s acquisition of Wasserstein Perella.

Landing Business Insider is a consolation prize for $5.7 billion Axel Springer, whose brands include the popular tabloid newspaper Bild. It was knocked out of the July bidding for the Financial Times at the eleventh hour by Nikkei. The Japanese group offered $1.3 billion, or a little more than two-and-a-half times the FT’s sales last year.

Axel Springer is paying 13 times Business Insider’s 2014 sales of $34 million, based on comments Blodget made earlier this year. The producer of everything from stories about luxury watches on eBay to tips from bond investor Jeffrey Gundlach may be on track for a top line of $50 million this year, making the multiple more like nine times.

Even so, at the minimum 30 percent annualized growth Axel Springer projects for Business Insider, it would take another five years to generate $190 million in revenue, roughly a third of the FT’s top line in 2014. That’s a long time to wait for a purchase to grow into the same price-to-sales ratio. The business paper sells subscriptions, but for now at least, Business Insider largely depends on less reliable online ad revenue. And the FT is profitable, while Axel Springer doesn’t expect Business Insider to break even until 2018.

Another German company once spent over the odds to buy a U.S. firm with a business based on rehashing ideas using a series of slides. In 2000, at the peak of a market cycle during which Blodget was a tech analyst at Merrill Lynch, Dresdner shelled out $1.4 billion for investment bank Wasserstein Perella. In a deal that wound up a colossal flop, Dresdner paid less than four times revenue and used its own overvalued stock. Axel Springer is spending cash.

Blodget became a financial celebrity by accurately predicting ludicrous valuations, such as a huge run-up in Amazon stock, in the late 1990s. Now he and Business Insider investors, including Amazon founder Jeff Bezos who is keeping a small stake, are taking full advantage of them.


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