With SFX filing for an IPO, the promoter is effectively asking investors to bet on the growth potential behind the $4.5 billion EDM market and the company's ability to build a successful business around the culture surrounding EDM. SFX events attracted 2.8 million people in 2012, up 23.6% from 2011, while the top five EDM events in the U.S. grew 41% annually from 2007 to 2012 compared to a 2% growth rate for the overall North American market.
To capitalize on this growth, SFX has acquired numerous promoters and one complementary company, Beatport, in order to provide fans with more engagement with EDM content and community. Beatport, an EDM portal that's part download store and part social network, was acquired by SFX in February.
But the prospectus also has the obligatory references to risk. SFX has gone all-in on EDM and does not have as diversified business. The company admits it is possible the popularity of EDM may not continue at its current rate "or even decline." And it acknowledges that its success relies, in part, on the ability of its festivals to continue to attract customers.
The financial statements show SFX is losing money as it grows. On a pro-forma basis, the company had a net loss of $48 million on revenue of $242 million in 2012. The pro-forma financial statements adjust the historical financial statements by taking into account past and planned acquisitions. Of the eight companies SFX has acquired or will acquire, five posted an operating profit in the first quarter of 2013. Three posted operating losses ranging from $774,00 (Disco Donnie Productions) to $1.3 million (Beatport).
The prospectus indicates SFX plans to buy out its earlier acquisitions with the $175 million it hopes to raise in the IPO. About $125 million will be spent to purchase the remaining interests in Totem, ID&T, Made and i-Motion. The remainder will be used to fund working capital, capital expenditures and other corporate purchases, including additional acquisitions.