WHAT? SESAC, the Society of European Stage Authors and Composers, has a new majority owner in private equity firm Rizvi Traverse. According to reports, Rizvi Traverse paid $600 million for a 75% stake in the company, which would give SESAC an $800 million valuation. Billboard sources say that more likely the price was $450 million for the 75% stake, which would result in a $600 million valuation. An earlier auction yielded bids of only $500 million-$550 million, they say.
WHY? Rizvi Traverse probably bought in, due to SESAC's ability to produce a five-year 13% compound annual growth rate. Some see further growth opportunities in an expanded roster, or from diversifying into administration services, mechanical licensing or maybe even an international play. Beyond that, SESAC's model leaves plenty of room for investors to recapture cash. In the last three years, BMI has paid out to songwriters and publishers 85.5% of the $2.7 billion it has collected; ASCAP has paid out nearly 87% of the $2.9 billion it has collected, while SESAC has paid out only 47%, or $167 million of the $356 million in revenue it collected, according to sources. In its most recent fiscal year, SESAC produced $41 million in EBITDA, while net publisher's share was $68 million, on total revenue of $128 million. That model leaves plenty of cash for dividend payouts to owners.
WHO? Rizvi Traverse, a private equity firm that has made equity investments in talent agency ICM, film studio Summit Entertainment, Playboy, Facebook and Twitter. Meanwhile, the sellers-Stephen Swid, Allen & Co., entertainment lawyer Freddie Gershon and Ira Smith-bought SESAC in 1992 for $15 million. Along the way it sold 36% of SESAC to asset management firm Och-Ziff in a deal that valued SESAC at $410 million in 2010.
If the original investors retain a 25% stake, and Rizvi Traverse bought out their other 39% stake and Och-Ziff's 36% stake, that means the latter received $216 million on its $147.6 million investment, while a $140 million debt offering from 2010 was also probably retired, leaving the original owners with a $94 million payout plus whatever dividends they paid themselves since 1992. For the last six years, that totaled $18 million in dividends and $158 million in dividend recapitalizations, or dividends funded by debt offerings.
IF? If new deep-pocketed owner Rizvi Traverse sees opportunity to grow SESAC, will it invest more funds for acquisitions? Or will it see SESAC as a safe cash-flow-producing investment like real estate, which produces predictable cash streams, and simply wait for dividends?
Meanwhile, SESAC management sees new growth opportunities in signing more international songwriters, and added revenue as digital service providers grow their revenue base. Currently, digital licensing accounts for only 2% of its revenue, while all broadcasting produces 60% of its revenue; general licensing to stores, concert halls, airlines, restaurants and bars brings in 25%; and foreign revenue accounts for about 13%. -Ed Christman