CPPIB Invests in Leading Digital Publisher

On Tuesday, the Canada Pension Plan Investment Board (CPPIB) announced that it will invest alongside KKR in acquiring a stake in Axel Springer:

Canada Pension Plan Investment Board (CPPIB) announced today that it will invest, through its wholly owned subsidiary CPPIB Europe S.à r.l, alongside funds advised by KKR, in Traviata I S.à r.l., a holding company that is conducting the voluntary public tender offer for the shares of Axel Springer SE (the “Offer”).

Axel Springer is a media and technology company that is active in more than 40 countries, providing information across its diverse leading classifieds portals (StepStone Group and AVIV Group) and media brands (among others Bild, Welt, Business Insider, Politico Europe).

The Offer, at €63 per share, was made on 12 June 2019 in partnership with Axel Springer’s major shareholders, Dr. h.c. Friede Springer and Dr. Mathias Döpfner, to further develop Axel Springer and strengthen its market-leading position. CPPIB’s financial commitment will be at least €500 million.

Over the last several years, Axel Springer has successfully transitioned from a traditional print media company to Europe’s leading digital publisher, representing a clear fit with CPPIB’s long-term strategy of investing in companies with leading market positions, attractive and diversified financial profiles, and consistent organic growth.

The Offer received acceptances for approximately 42.5% of the share capital of Axel Springer SE at the end of the acceptance period on 21 August 2019. This exceeds the offer acceptance threshold of 20%. In addition, agreements have been entered into by KKR to acquire Axel Springer shares outside the public tender offer, corresponding to approximately 1.04% of the share capital and the voting rights of Axel Springer.

The Offer, as well as CPPIB’s investment alongside the other investors, remains subject to the completion of certain regulatory conditions and closing of the transaction; and CPPIB’s alongside investment is expected to take place in the coming months.

About Canada Pension Plan Investment Board

Canada Pension Plan Investment Board (CPPIB) is a professional investment management organization that invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits in the best interest of 20 million contributors and beneficiaries. In order to build diversified portfolios of assets, CPPIB invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPPIB is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2019, the CPP Fund totalled $400.6 billion. For more information about CPPIB, please visit www.cppib.com or follow us on LinkedIn, Facebook or Twitter.

As stated in the press release, CPPIB’s financial commitment will be at least €500 million, which is a sizable amount even for a giant like CPPIB.

You might be wondering who is Axel Springer? To answer this, I read an interesting Fortune article published four years ago:

If you’ve been following any of the recent funding and acquisition news in the media industry, one name keeps popping up in almost every story: Axel Springer. The company just finished buying Business Insider—a company it already owned a small stake in—for $343 million, tried and failed to buy the Financial Times in July for $1 billion, and has invested in half a dozen media startups, including New York-based Thrillist.

Springer may be a relative newcomer to the U.S. market, but it is a well-known player in the European media industry. Based in Berlin, it is a giant in the German media business, with leading newspaper and magazine titles that include Bild and Die Welt, and annual revenues of about 3 billion Euros, or $3.2 billion.

The company was founded in 1946 by Axel Springer and his father Hinrich and initially published a single monthly magazine about books. Other magazines followed, and then the daily tabloid newspaper Bild, which was modelled on the British tabloid The Daily Mirror. The company grew through acquisitions, and is now controlled by Springer’s widow Friede, who owns a majority of the shares.

The company’s aggressive moves into U.S. media are part of an ambitious growth strategy designed by Mathias Dopfner, who has been Springer’s CEO since 2002. There are two main prongs to the strategy, which is being powered by the cash flow from the company’s traditional media assets: 1.) Expand further into digital content, and 2.) Expand further into English-speaking markets like the U.S. and Britain.

One of the first major signs of this strategy at work was the takeover bid for the Financial Times, one of the most highly-respected business publications on the planet. The magazine was widely believed not to be for sale, but the new CEO of owner Pearson PLC had made public statements that suggested he might be interested in a deal, and so Axel Springer pounced, with a $1 billion offer.

It looked like a done deal, to the point where the Financial Times itself reported that the acquisition was going ahead. But at the last minute, Japanese financial giant Nikkei made a counter-offer, and Pearson accepted it. That wasn’t Springer’s first attempt to buy a financial publication, however: The German company also made a bid for Forbes when it went up for sale in 2014.

After losing the FT bid, Springer quickly pivoted and made an offer to acquire a controlling stake in Business Insider, the upstart business-news site co-founded by former Wall Street analyst Henry Blodget. Springer already owned a 9% stake in the company, after investing in January as part of a funding round, and made an offer that Business Insider couldn’t refuse for the remainder of the company. (Amazon CEO Jeff Bezos retains a 3% stake he acquired via an earlier round.)

In a tangible sign of his determination to buy the news startup, the purchase price for Business Insider valued the entire company at close to $500 million, or more than twice what it was valued at when Springer first invested in the company nine months earlier.

“This really is a pivotal point in the changing of the media landscape,” Dopfner said on the conference call announcing the Business Insider deal, referencing the billion-dollar valuations for companies like Vice, Vox and BuzzFeed. “New digital media companies are being built and we definitely want to be a player. With Business Insider we have laid the foundation to achieve that.”

The acquisition price is more than six times the startup’s estimated revenues for 2016. That’s not far out of line with other recent investments in the media sector—including NBC Universal’s $200-million investment in both Vox and BuzzFeed—but not exactly cheap either. On the day the news was announced, Axel Springer’s share price took a hit, although it’s difficult to say whether that was due to skepticism about its expansion strategy or overall weakness in European stocks.

Over the past year or so, Springer has been building up what amounts to a hedge fund portfolio made up of stakes in media startups, primarily based in New York. It now owns small amounts of half a dozen companies, including: Ozy Media (founded by former MSNBC news anchor Carlos Watson), Mic (co-founded by Chris Altchek and Jake Horowitz) and NowThis News (one of a stable of companies funded by Lerer Ventures). Most are aimed at a millennial news audience.

Springer is also a 50% shareholder in Politico Europe, the European arm of the U.S. political-news startup founded by former Washington Post staffers Jim VandeHei and John Harris. That partnership fulfills both of Springer’s requirements — it is an English-speaking company, and it is almost 100% digital (although it does publish print versions of its topic-focused newsletters for certain markets).

Although part of Springer’s strategy is to become more digital, it should be noted that the company is already much farther along that road than many of its competitors, either in Europe or the U.S. In 2012, Springer created a digital classified business in partnership with the private equity fund General Atlantic, and expanded it by acquiring a job-listing site called TotalJobs from Reed Elsevier. More than 70% of the company’s cash flow now comes from digital businesses.

Springer has also been trying to build its own digital businesses in-house as well: It recently partnered with Samsung to launch a curated-news product called Upday that aggregates news from a variety of sources for users of Samsung phones. At the same time, Dopfner has been a vocal critic of Google’s dominance in search and search-related advertising, writing an “open letter” to chairman Eric Schmidt about his concerns that the company has too much power online.

Funds from Springer’s growing digital base, and the continuing cash flow from newspapers and magazines, have provided most of the fuel for Dopfner’s acquisition and investment strategy—along with the money it raised in 2013 by selling its regional newspapers and many of its smaller magazines to another German media group for close to $1 billion. The only question is where it will strike next.

This article gives you a glimpse into Springer's digital transformation and growing media empire.

Mathias Döpfner, Axel Spinger's CEO, has done wonders with this company, targeting great acquisitions in digital media, growing revenues and always staying two steps ahead of the competition -- and there's tremendous competition in this space.

What do I think is the future in digital media? More targeted and smart content that appeals to a growing population of highly educated people who are hungry for great content.

As far as CPPIB's acquisition, it's sizable but it's a great long-term play in the growing digital media space. KKR is a great partner to have on a deal of this magnitude.

Below, a fireside chat with Dr. Mathias Döpfner, CEO of Axel Springer and Marco Rodzynek, Founder & CEO of NOAH Advisors at the Axel Springer NOAH Conference 2018 in Berlin, Tempodrom 6-7 June 2018.

This is an excelent discussion, listen to his thoughts on monetization which seems to be the big problem for all digital platforms.

Also watch The New Yorker's Ken Auletta full interview about digital media with Mathias Döpfner at Business Insider's annual flagship conference IGNITION (February 2017).