INgrooves Up For Sale With $100M Price Tag: Sources

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Shamrock Capital is seeking a buyer for the digital distribution company.

INgrooves, the digital distribution company majority owned by Shamrock Capital, is up on the block with the investment firm looking for a $100 million payday, according to sources.   

Per its website, INgrooves also serves as the distributor of Strange Music (Tech N9ne), Rostrum (Mac Miller, Wiz Khalifa catalog), CM7 Records (Chante Moore) and Sargeant House (Deaf Heaven, Earth and Boris catalog), among other labels   

In addition to digital distribution, INgrooves capabilities also offers music publishing services, neighboring rights and an artists services division. Billboard estimates INgrooves annual revenue at about $150 million and that the company has about a 2 percent recorded music market share in the U.S. Sources say that LionTree Advisors, which successfully shopped and sold SONGS Music Publishing, has been hired to run the auction for INgrooves.

Co-founded by Robb McDaniels in 2002, INgrooves has long been closely affiliated with Universal Music Group, which at one point owned 51 percent of the company. When Shamrock bought into INgrooves in 2010 and then implemented a 2012 merger with UMG's independent distribution company Fontana, it paid UMG about $10 million in a deal that also gave Universal a 22 percent stake in the merged company. INgrooves market share is included under UMG's market share.

In addition, INgrooves delivers music from Universal Music Group's distributed independent labels to digital services, comprising nearly one-third of UMG's U.S. market share. INgrooves only offers this digital infrastructure service to UMG and doesn't pursue it as a stand-alone business. 

While UMG would be a logical buyer—and it likely negotiated the right of first refusal when the merger happened that if Shamrock ultimately decided it wanted to sell—the fact that INgrooves is being shopped suggests that UMG may not be interested, or at least at Shamrock's current price tag and it may wait to see what kind of pricing emerges from a bidding process. Or it could mean that UMG's contractual rights with regard to an INgrooves sale have expired. Nevertheless, UMG also has matching rights, meaning that if someone makes an offer that's acceptable to Shamrock, UMG gets another crack at buying INgrooves, say sources close to the situation.

Sony Music Entertainment would be a logical buyer for INgrooves, as it has been buying up other digital distribution companies around the globe, including Germany-based Finetunes and Norway's Phonofile, and then merging them into the Orchard -- which it also did with its other indie distribution company RED. Already an independent global powerhouse, a potential Sony acquisition of INgrooves would make it by far put the No. 4 music distributor in the world, behind the three major distributors, UMG, Sony and Warner Music Distribution. If Sony merged it into the Orchard umbrella, it would create a company with nearly $700 million in revenue. Moreover, it would immediately close the market share gap between Sony and UMG by four percentage points in the U.S., since such a deal would add INgrooves market share to Sony, while taking it from UMG's share. Using figures from the end of 2016 2017 as an example, that would reduce the spread enough to turn UMG's 36.67 percent into 34.67 percent and Sony's 27 percent into 29 percent, according to Billboard calculations based on Nielsen Music data.

Warner Music Group also is a logical suitor in that an acquisition of INgrooves would help put its own independent distribution operation, Alternative Distribution Alliance, within striking distance of the Orchard's market share dominance.

Other potential suitors could be growing music companies like Concord Music Group and BMG, which would put either in charge of their own destiny, instead of relying on one of the majors for distribution -- UMG in the case of Concord and WMG for BMG. But so far, it appears that controlling their own distribution company and related services does not fit into either of their business plans as they seem content to have the majors, or their owned independent distribution companies, serve as their distributors.

Finally, INgrooves might appeal to the Kobalt Music Group or Believe, the big French digital distribution company, since both offer many of the same services as the Shamrock company. Kobalt has been known to buy competitors, such as Fintage in 2016, in order to grow revenue and market share. Meanwhile, Believe acquired TuneCore in 2015. Now both would benefit from strategic synergies if they could buy INgrooves, but perhaps more importantly both are wooing institutional investors and press reports suggests Believe is contemplating a public offering. With either strategy, market share growth is always an appealing story to investors, something that the acquisition of INgrooves would accomplish.

Another potential strategic suitor, be on the distribution front, could be PIAS, one of Europe's largest independent distributors, which could see a strategic fit with INgrooves in that it would give the company a substantial presence in North America, where it is already trying to get a toehold.

While these are strategic possibilities, there is always the possibility that financial investors could become suitors. But typically, institutional investors like to buy catalogs of copyrights, while owning companies that provide services to copyright owners seems to be less of a goal, although Kobalt seems to be the exception to that rule.

INgrooves, UMG, and WMG declined to comment while the other companies mentioned didn't immediately respond or couldn't be reached for comment.