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Music start-up Believe aims to raise €500m at IPO

Believe, a French start-up that bills itself as a new breed of music label for the streaming era, has filed for an initial public offering with the aim of raising €500m to fuel its expansion and fund acquisitions.

Founded in 2005 by chief executive Denis Ladegaillerie, Paris-based Believe is aiming for a valuation of above €2bn, according to a person familiar with the matter.

The company is seeking to capitalise on renewed investor enthusiasm for the music sector, which has returned to growth after two decades of decline as subscription-based streaming services including Spotify, Deezer and Apple Music replace CD sales.

The new era has also begun to shift the power dynamics among artists, major labels, and the private equity companies and specialist investors rushing into the market. Streaming has not only boosted the value of back catalogues, but also put pressure on major labels to deliver more of the profit derived from it back to artists, creating an opening for newcomers such as Believe.

“Artists want to keep their own intellectual property and have a partner with digital expertise, who offers them economic terms that are more favourable [than traditional labels],” Ladegaillerie said on Monday.

“You do not develop an artist in the digital era as you did in the analogue one. As music goes digital globally in the next 10 years, this creates an opportunity for us as the market transforms.”

Believe works with independent musicians and music labels as they seek to build up popularity via social media and put their work on streaming music platforms. These include a broad range of artists from individuals just starting out to more established artists, such as French rapper Jul, Australian band Parcels and Lebanese singer Nancy Ajram.

For smaller artists, it offers a platform called TuneCore to allow them publish their music at a low cost, but the vast majority of its revenues comes from its premium service for bigger artists. But unlike traditional music labels, the bigger artists it works with keep their own copyright and pay Believe a share of revenue for the services it provides.

Believe is one of several new digital music companies looking to challenge the major labels with more flexible deals and service-oriented contracts. Companies including Kobalt’s AWAL, sold this year to Sony, Ditto in the UK and Downtown in the US have emerged in the streaming age to offer musicians an alternative to traditional record deals to promote and develop their work.

According to its IPO registration document, the company reported €441.4m in sales in 2020, up 12 per cent from 2019. However this was down from 65 per cent achieved from 2018 to 2019 as growth slowed because of the pandemic. It also swung to a net loss of €26.3m last year due to heavy investment in technology and staff, after having achieved a €4.6m profit in 2019.

Believe’s adjusted earnings before interest, taxes, depreciation and amortisation margin was 2 per cent in 2020, lower than the roughly 10 per cent in the two years before.

The company said it was aiming for like-for-like sales growth of about 20 per cent this year and for adjusted ebitda margins to be stable. By 2025, it aims for 22 to 25 per cent annual sales growth and an ebitda margin of 5 to 7 per cent.

Ladegaillerie said that Believe was still focused on growing and expanding into new countries so it would continue to invest in the coming years as opposed to focusing on profitability.

The company wants to become more acquisitive following the IPO, aiming to spend €100m a year on deals from 2022 to 2025 compared with €126m since 2018.

Believe’s biggest shareholder is California-based growth fund TCV with a 49 per cent stake, while other backers include French venture group Ventech and London-based GP Bullhound. Ladegaillerie owns a 15 per cent stake and does not have special voting rights.

Citi, JPMorgan and Société Générale are acting as joint global coordinators and joint bookrunners.

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