The Twitter Effect: Will Elon Musk’s deal lead to more social media M&A?

Data Insight Dealspeak 29 April

The Twitter Effect: Will Elon Musk’s deal lead to more social media M&A?

Elon Musk’s purchase of Twitter [NYSE:TWTR], a micro-blogging site, is the latest in a rising number of social media acquisitions.

The deal will allow Musk to remake a company that had not improved its product or advertising software in years, away from the impatient scrutiny of public company investors.

“They’ve been going around in circles for years,” says Rohit Kulkarni, an analyst at MKM Partners. “The turnaround is better done in private.”

Valued at USD 39.7bn for the 90.9% of Twitter Musk does not own, it is the fourth biggest take-private transaction globally of all time, according to Dealogic. In the US, it is dwarfed only by a deal that took place 15 years ago: the USD 43.8bn buyout of Texas power company TXU. The other two bigger take-privates happened in Italy only recently: Atlantia’s USD 46.3bn buyout by Blackstone in mid-April and KKR’s USD 40.1bn buyout of Telecom Italia last November.

Billionaire’s gambit

A rich history of billionaires buying traditional media assets exists. In 2013, Amazon’s Jeff Bezos acquired the Washington Post and in 2015 the Agnelli and Rothschild families bought out Pearson’s stake in the Economist.

Until now, social media assets have attracted large tech companies, often with billionaires behind them, rather than the super-rich directly. In 2016, Microsoft [NASDAQ:MSFT] paid USD 28.1bn for professional networking site LinkedIn, which had been the largest social media deal until Musk’s Twitter swoop. That same year, Marc Benioff’s Salesforce.com [NYSE:CRM] also showed interest in LinkedIn as well as Twitter.

In the main, however, the biggest social media deals have featured spinoffs or mergers with blank check companies. For example, dating site Match.com was spun off to shareholders in a USD 25.6bn transaction in 2019 and video platform Vimeo was spun off in a USD 6.4bn deal last year. Other big 2021 deals involved special purpose acquisition companies (SPACs): Nextdoor [NYSE:KIND], a network connecting neighbors, is now public following a SPAC merger, while Florida-based video platform Rumble and President Donald Trump’s proclaimed antidote to Big Tech’s cancel culture, TMTG, announced plans to do the same.

Social tailwinds

The Twitter deal should be a tailwind for social media companies like Snap [NYSE:SNAP] and Pinterest [NYSE:PINS], says Kulkarni. “I’m more positive on them.”

He declines to speculate on whether it will translate to M&A interest in them, but he points out that Pinterest was reportedly the subject of takeover interest last year, first from Microsoft and then PayPal [NASDAQ:PYPL].

Other social media properties could come into the frame too, says an advisor. Nextdoor is one. Rumble, whose USD 3.2bn SPAC deal has yet to close, is another.

San Francisco-based Reddit confidentially filed for an IPO last December but has yet to go public. Much smaller ones getting attention include California-based Rallio, a social media platform for franchises that was looking to sell a majority stake in January. Another is New York-based Sermo, a social media platform for physicians that expects to explore a sale or IPO in 2024.

Other privately held Twitter alternatives exist. They feature the conservative leaning Parler, which raised USD 20m in January, and Gettr. Then there is Counter.Social, where many of the liberal Twitterati say they are defecting. Whether those gain enough traction – and with it greater M&A interest – remains to be seen.

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