Exclusive: Insider Inc. buys majority stake in Morning Brew in all-cash deal

Insider Inc., the parent company to Business Insider, closed an all-cash deal Thursday to buy a majority stake in Morning Brew, a media startup that focuses on business newsletters and podcasts.

Why it matters: It's an unusual success story amid a bleak media landscape. Morning Brew's co-founders, both under 30, raised very little capital upfront to launch their business but still managed to be quite profitable.

Deal terms: The deal values Morning Brew at around $75 million, sources tell Axios.

• The Morning Brew co-founders will retain a sizeable minority stake and have an earn-out clause built into the deal, which encourages them to stay and grow the business long-term.
• "We are incentivized to be profitable and to grow quickly," co-founder Alex Lieberman tells Axios.
• Lieberman and co-founder Austin Rief will sit on a small, newly created Morning Brew board that will also include Insider Inc. co-founder and CEO Henry Blodget.
• The Wall Street Journal reported earlier this month that the companies were in talks for a deal.

Deal structure: The Morning Brew brand will remain fully intact and the business will operate completely independently within Insider Inc., which is parent to Business Insider and a paid research division, which includes eMarketer.

• The company will remain in its office in downtown Manhattan and will retain its own organizational structure.
• Morning Brew's products will stay the same. Its five free newsletters and its podcast will remain free and ad-supported and the content won't change.
• "There's a lot of growth left in the ad business for them," Blodget tells Axios.
• None of Morning Brew's roughly 60 employees are being laid off.

The backstory: Lieberman and Rief first reached out to Business Insider over two years ago about a potential content syndication partnership, and the relationship grew from there.

• "We've been aware of their product for a long time and have been talking to them for a couple of years," says Blodget.
• Blodget sold Business Insider to German publishing giant Axel Springer in 2015, in part because Springer agreed to keep the firm's editorial focus and management intact.
• "Axel Springer didn't want to combine us with something and wring out synergies. They wanted us to build our business in the U.S. and continue to grow our existing business. ... I think for Alex and Austin, the decision was the same."

By the numbers: This year, Morning Brew expects to bring in over $20 million in revenue, and $6 million in profit. The company has been profitable since 2018, which is rare for media upstarts.

• Lieberman and Rief, ages 27 and 26, respectively, raised a modest seed round — $750,000 — in late 2017 to jump-start the business, shortly after graduating from the University of Michigan.
• Most of the company's revenue comes from selling flat-fee sponsorship packages around its newsletters. It makes some money from site sponsorships and its podcast.

Morning Brew has four business-focused newsletters, and a product and lifestyle recommendation newsletter called "The Essentials." Its largest newsletter, a daily general business email called "Morning Brew," has 2.5 million subscribers.

• Its other newsletters — Retail Brew, Emerging Tech, Marketing Brew, and The Essentials — help the company reach a total of 3 million email subscribers.
• Those newsletters, which run two to three times per week, all have subscriber lists "well into the six figures," the co-founders say.

• The company focuses on newsletter engagement as a sales metric. Rief says its main newsletter has an average open rate of 40% and that it has remained consistent over time.
• The duo says its cost per acquisition per newsletter subscriber has decreased drastically in recent months, due to increased engagement with its referral program.

Morning Brew's secret sauce is that it's been able to develop a hyper-loyal newsletter and podcast fan base of business-minded millennials. The average age of a Morning Brew newsletter subscriber is 29.

• Its business focus, product strengths and financial health are what attracted Blodget to the deal. "Email is not a business we are really focused on. The deal is a wonderful way to partner with a company that's very strong in that and podcasts," Blodget says.

The big picture: Many media firms are struggling to stay afloat amid the coronavirus pandemic. Many of Morning Brew's peers have had to implement layoffs, furloughs or pay cuts.

• Insider Inc. has been spared from that wreckage. While Blodget concedes its advertising business took a short hit during the pandemic, he hasn't had to do any layoffs, and the business is in a healthy position to be able potentially to do more deals.
• "We're looking at a lot of companies and are excited to acquire more," he says.

What's next: The Morning Brew team is focused on ad-supported growth in the near future, but it's eyeing ways to diversify its revenue.

• Its "Business Casual" podcast is growing quickly, and the team is looking to expand into more audio. "The Essentials" business lifestyle email could one day be ripe for affiliate marketing deals.
• The company will continue to focus its newsletters on smart analysis and aggregation of business news. It doesn't plan to expand into original reporting in the near term, but it will focus on creating more original content that's centered on analysis and insights.