SESAC, which represents artists and songwriters from Bob Dylan to Kurt Cobain, was sold by a consortium of investors--Allen & Co.; entertainment lawyer Freddie Gershon, CEO of Music Theatre International; Ira Smith, former CEO of Music Theatre International, and then SESAC chairman/CEO Stephen Swid, who was the largest shareholder with a more than 40% stake--who bought the company in 1992 for $15 million. During that time revenue grew from about $9 million in 1994 to about $167 million in the 12-month period ended Dec. 31, 2013.
SESAC's profits grew to an estimated $57 million in earnings before interest, taxes, depreciation and amortization on $167 million in revenue in 2013, from an adjusted $44 million in EBITDA on revenue of $137 million in 2012.
Moody's expects SESAC to grow to $180 million in annual revenue in the next 12 months, and forecasts the company to have estimated adjusted EBITDA of about $63 million.
According to Moody's, the new owners negotiated protection against the antitrust lawsuits that the Television Music Licensing Committee and the Radio Music Licensing Committees are pursuing against SESAC. The Moody's report, authored by analysts Gregory Fraser and John Diaz, said that $79 million of the acquisition payable to the sellers is actually being held in escrow for 18 months to cover potential legal expenses and any potential damages from the antitrust litigation.
In early motions, rulings in both cases suggest that the respective judges could find that SESAC engaged in anticompetitive behavior if the litigation proceeds to trials. The judge in the TMLC case encouraged both sides to settle, putting pressure on SESAC that it should take into consideration his ruling against the PRO's motion to dismiss.
In other news, SESAC recently acquired 94% of Rumblefish, the micro music licensing company, which provides music content rights clearance, monetization and administration services of social video and media content, according to Moody's.
Moody's gave the company an overall rating of B2, which is not institutional grade and noted that "there is some concern" following the November 2013 departure of Swid, who Moody's says used his influence and valuable industry connections to grow the company. but "easing the concern is the fact that SESAC's president and COO Pat Collins, and his senior management team remain in place and continue to manage the day-to-day operations of the business."