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October 9, 2013 5:04 pm
Even the best music acts repeat themselves. If there is a melody that resonates with the audience, why mess with a good thing? The suits who run the music business rely on the same trick. Two decades ago, Robert FX Sillerman combined scattered promoters of rock and pop and turned them into Live Nation.
Now his SFX Entertainment, which begins trading on Wednesday, is a cover of the same tune, though remixed as electronic dance music (EDM). And investors seem to have caught the euphoria the millennials feel at EDM confabs – SFX’s share offering was upsized and priced at $13, the high end of the range. But when the pulsating beat finally fades at 6am, the case for owning SFX rests on a demographic whose fickle tastes have glorified and then ditched brands such as Abercrombie & Fitch.
Avicii and Skrillex may not be household names, but the multi-day festivals (with titles such as Defqon1) where they spin pack in thousands of neon-clad kids. The EDM market is estimated to be $4.5bn in 2013 (Live Nation’s concert revenues alone total $4bn). But attendance growth at the biggest events has been 40 per cent annually during the past five years. SFX’s strategy is about both the growing market (plenty more cities can host large EDM events) and squeezing synergies from the acquisition of far-flung shows. Much of the $260m in IPO proceeds will go to finance already announced deals.
At its current enterprise value of $1bn, SFX trades at three times forward revenue and more than 20 times operating cash flow. While it is growing quickly, acquired and organic growth should be distinguished. Nearly all of SFX 2012 revenue is from dealmaking.
The ever-hip Mr Sillerman has also attached a social/web presence, Beatport, to SFX. It contributes just a quarter of group revenue. SFX’s valuation implies that it will be the headliner in the near future.
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