Why SiriusXM Is Buying Stitcher From E.W. Scripps Company For $325 Million (SSP, SIRI) 

By Amit Chowdhry ● July 15, 2020
  • The E.W. Scripps Company (NASDAQ: SSP) recently announced that it has entered into an agreement with SiriusXM Holdings (NASDAQ: SIRI) to sell podcast industry leader Stitcher for $325 million

The E.W. Scripps Company (NASDAQ: SSP) recently announced that it has entered into an agreement with SiriusXM Holdings (NASDAQ: SIRI) to sell podcast industry leader Stitcher for $325 million, which is a return of more than double Scripps’ investment in podcasting over the last five years. And this transaction will advance and deepen SiriusXM’s position in podcasting.

Stitcher includes three 3 podcast business lines, including the Midroll advertising rep firm, several owned-and-operated podcast networks, and the Stitcher podcast listening platform. And Stitcher’s podcasts also include Freakonomics Radio, My Favorite Murder, How Did This Get Made?, SuperSoul Sunday from The Oprah Winfrey Network, Office Ladies, Conan O’Brien Needs a Friend, Literally! with Rob Lowe, LeVar Burton Reads, Comedy Bang! Bang!, and WTF with Marc Maron.

Through the acquisition, SiriusXM’s combined properties will contain the largest addressable audience in the U.S. across all categories of digital audio: music, sports, talk, and podcasts. And the transaction will also further extend the substantial reach of SiriusXM in the digital audio ad marketplace. 

Scripps is known for being an early entrant in podcasting as it acquired Midroll in 2015 for $55 million and the Stitcher app in 2016 for $4.5 million. And since then, Stitcher has been a leader in the fast-growing podcast industry, growing revenue at a CAGR of 52% from 2016-19. Last year, Stitcher’s revenue was $72.5 million.

The SiriusXM and Pandora owned-and-operated digital platforms — combined with the company’s exclusive ad sales arrangement with SoundCloud for the U.S., and the Stitcher and Midroll networks that are subject to the agreement — will reach over 150 million listeners. And upon completion of the transaction, SiriusXM will be better positioned to advance the podcast ad market and help solve some of its critical challenges through precision targeting, ad efficiency, and improved measurement capabilities via a streamlined ad marketplace.

Details About The Transaction:

— The sale price is $325 million with $265 million of cash upfront

— Earnout of up to $30 million based on 2020 financial results and paid in 2021

— Earnout of up to $30 million based on 2021 financial results and paid in 2022

— Full price represents an internal rate of return after taxes in the mid-20% range and cash-on-cash return of more than 2x — which incorporates the purchase prices for Midroll and Stitcher of $59.5 million as well as Scripps’ investments in the business over the last five years

— Improvement in National Media segment profit and company EBITDA with the elimination of Stitcher annual losses in the high-teens millions of dollars

— Estimated tax liability of approximately $70 million assuming the full earnout is achieved

— Scripps has about $190 million of net operating loss carryforwards that would offset about $40 million in 2020 tax liabilities

— The move of all Stitcher employees to SiriusXM

This transaction is expected to close in the third quarter, pending Hart-Scott-Rodino clearance. And LionTree Advisors has acted as exclusive advisor to Scripps in the sale process and BakerHostetler is serving as legal counsel.

Guggenheim Securities, LLC is serving as financial advisor to SiriusXM and Weil, Gotshal & Manges LLP is serving as its legal counsel.

How The Deal Makes SiriusXM More Competitive

The decision for SiriusXM to buy Stitcher was crucial as the company is facing intense competition against Spotify. Spotify recently signed podcasting deals with Kim Kardashian West and Joe Rogan. And Spotify made several acquisitions over the last couple of years to build out its podcasting operations including Anchor (for $140 million), Gimlet Media (for $200 million), Parcast, and The Ringer.

Key Quotes:

“This sale is consistent with Scripps’ track record of growing businesses that capitalize on the evolution of consumers’ media habits and then unlocking shareholder value through spinoffs, exits and continued organic growth. Over and over, this strategy has proven effective as well as profitable for the company and its shareholders.

“We are firmly committed to our national businesses and are enthusiastic about the opportunities we see ahead in digital audio, over the top and over the air television.”

— Scripps President and CEO Adam Symson

“The addition of Stitcher is an important next step as we continue to develop and strengthen our offering in the fast-growing podcasting market. With Stitcher, we will expand our digital audio advertising presence and look to generate new ways for creators to find and connect with their audiences. Stitcher has a talented team with deep experience in the podcast space, and we look forward to working with them to better meet the needs of creators, advertisers, and listeners.”

— Jim Meyer, Chief Executive Officer of SiriusXM

“As a result of this transaction, Scripps is improving our leverage ratio through higher company EBITDA and garnering cash we can use toward debt reduction, which continues to be our highest priority.” 

— Scripps Executive Vice President and Chief Financial Officer Lisa Knutson