Will Investors Have Faith in Believe? French Music Company Is Latest to Test IPO Waters

Paris, France
Marc Piasecki/Getty Images

Paris, France

The decade may be young, but the 2020s are off to a roaring start for music industry investors. Already this year, two record labels, Warner Music Group and South Korean powerhouse Big Hit Entertainment, home of K-Pop stars BTS, had successful initial public offerings in June and September, respectively. Universal Music Group, the largest record label and second-biggest music publisher, plans to have an IPO by 2022.

French music distributor Believe could be next. Believe, a diverse music company that spans record labels to merchandise, is planning an IPO on either a Paris or New York exchange in 2021, Reuters reported on Nov. 12.

The hoped-for valuation of reportedly €2 billion ($2.4 billion) is relatively small compared to other publicly traded music companies. Still, based on deals this year, Believe could fetch an EBITDA multiple around 20. In other words, Believe could raise $20 for every $1 of earnings before interest, taxes, depreciation and amortization. A 20 EBITDA multiple would be inline with Believe's competitors: Warner Music Group currently trades at 20.5 times, trailing 12-month adjusted EBITDA. Tencent paid 26.7 times 2019 EBITDA when its deal for 10% of Universal closed in March.

Believe started as a distributor but has since grown and diversified. A string of acquisitions includes rival distributor TuneCore in 2015; indie label and publisher naïve in 2016; a minority stake in French label-publishing-booking company Tôt ou tard in 2018; a majority stake in heavy metal label Nuclear Blast in 2018; and Indian live music production company Entco in 2019.

In the ‘10s, Believe probably would have fetched less than $10 for every $1 of EBITDA. A string of three acquisitions less than a decade ago traded at sub-10 multiples. Access Industries' purchased Warner Music Group for 8.4 times EBITDA in 2011. Warner's IPO in June implied a 17.2 multiple. Universal Music Group paid 9.4 times EBITDA for EMI Music in 2012. When the European Union demanded that Universal offload some assets to lower its market share, Warner paid 7.0 times EBITDA for Parlophone Records in 2013.

In the ‘20s, a music company can tap into investors' eagerness to put money into a company in the fast-growing recorded music market. Goldman Sachs forecasts the global recorded music market will reach $45 billion annually by 2030, about 2.4 times today's value. The estimate depends on 1.15 billion subscribers for music streaming services, nearly three times the MiDIA Research's estimate of 400 million subscribers in the first quarter of 2020. Even if subscriber and revenue estimates are too optimistic, the narrative remains the same: recorded music is an attractive growth market far removed from the post-Napster ‘00s and early ‘10s.

In 2017, a report claimed Sony Music would acquire a majority interest in Believe for between $355-$444 million, putting the company's value in the $700-$870 million range. Believe promptly denied a deal had been reached, although CEO Denis Ladegaillerie told Billboard that Believe was "actively exploring funding options" including a public listing. Now, an IPO would give Believe and its early investors a payday that was unreachable in 2017.