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Elton John, Journey and The Darkness all had hit songs about belief. A resonance with its signed artists led French music label Believe to the stock market in 2021. Yet its disappointing performance ever since has left early investors with a headache.
Monday’s announcement of a €15 a share cash buyout offer from a consortium led by founder and chief executive Denis Ladegaillerie and a 44 per cent undisturbed premium might then play well. Though this appears a case of him selling high and buying low.
The way people listen to music today has inverted the previous business model. Streaming services such as Spotify have helped shift some bargaining power to artists. Believe has capitalised on this trend, focusing on smaller artists and digital-only distribution. With 1.3m artists signed, Believe is in effect a bet on the structural shift to streaming and artist control. But despite some fast growth during the pandemic, a slowdown set in last year that has kept shares well below their listing price.
Ladegaillerie has teamed up with private equity group TCV. Together, they already own more than half the shares. Sweden’s EQT will help complete the buyout, taking Believe private at a value of €1.5bn. Altogether, the three have agreements representing about 75 per cent of the share capital. This suffices for a mandatory offer. Any remaining minority shareholders could be squeezed out.
They may not be so happy with the price. The €15 offer is well below the €19.5 IPO price. True, the pace of its pre-acquisition expansion last year should slow to half the 32 per cent recorded in 2022. Digital music sales at Universal Music Group also slowed last year to 4.5 per cent, according to Visible Alpha, but from a much larger base.
The scale of its larger listed rivals makes valuation comparisons tricky. On a forward EV/ebitda basis the consortium has offered a 20 times multiple, in line with UMG and above the 15 times that Warner Music trades on. Its estimated 2024 free cash flow is just €25mn, a small fraction of those of its rivals.
An EV/sales multiple comparison paints the offer less generously, at about 1.4 times versus 4.5 times for UMG and 3.4 times for Warner Music. The buyers could have offered more to minorities, especially those fans that bought into Ladegaillerie’s original growth thesis. They will remember, should he return to the market with an encore.
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