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The Ledger: Music Companies That Didn’t Go Public Missed a Crucial Window

As stock prices have plummeted, the IPO market has slowed – though that won't necessarily stop some companies from entering the fray.

The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.

If a music company was thinking about going public last year and didn’t, it may have already missed its opportunity – at least for the foreseeable future.

Since Universal Music Group went public on Sept. 21, 2021, the S&P 500 is down 5.9% and the tech-heavy Nasdaq is down 18.5%. From that date to the end of 2021, the markets rose 9.4% and 6.3%, respectively, and it looked like UMG might have left money on the table. But in 2022, stock prices turned south due to a combination of factors – namely rising interest rates and high inflation – and recession fears have multiplied. With the U.S. and other major economies on the edge of recession, the IPO market slowed in the first quarter after a record-setting 2021 – meaning companies that passed on the opportunity to go public missed a window that may not reopen any time soon.

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The difference between September and now is worth billions of dollars to a mid- or large-sized music company. On its first day of trading, UMG traded at 33 times the previous year's EBITDA – a 48.6 billion euros ($52.1 billion) valuation. Today, UMG is trading at 24 times the previous calendar year's EBITDA – a 39.7 billion euros ($42.6 billion) valuation. Even a relatively small company worth a few billion dollars would have been worth a few hundred million more in the fall of 2021.

That won't necessarily stop some music companies from going public, however, with a couple of them all but certain to do so over the next few years. Opry Entertainment Group, the country-themed entertainment division of Ryman Hospitality Properties – a publicly-traded real estate investment trust – is one of them. A REIT is a good model for real estate investing but requires the business receive at least 75% of revenue from real estate. Ryman is bringing in strategic investors to buy a 30% stake in the division and help grow the company, which accounted for 16% of Ryman's 2021 revenue. Thus, even before the deal is inked, a spin-off from Ryman is highly likely. "At some point, we will separate the business," CEO Colin Reed said during an April 2022 investor call. President Mark Fioravanti added that Opry's soon-to-be-strategic investor, Atairos Group, will have the right to call for an initial public offering in four years.

French music streamer Deezer has also announced plans to go public through a merger with I2PO, a French special purpose acquisition corporation, at an unspecified date. But SPACs have proved to be an unpredictable route to the public markets, as investors are showing less interest in the more speculative companies SPACs tend to target. (New SPAC rules proposed by the Securities and Exchange Commission on March 31 can probably take some of the blame.) SeatGeek, an online ticketing marketplace, announced Thursday (June 2) that it canceled its plan to merge with a SPAC due to "volatility in the public markets." A Hong Kong-based SPAC's planned merger with media company Forbes also fell apart this week. SPAC IPOs are raising less money and fewer SPACs are merging with companies and putting their proceeds to work.

Not even a high-growth, high-opportunity streaming media company in a hot market could muster much support. Anghami, an Abu Dhabi-based music streaming platform, went public in February by merging with a SPAC. Although the long-delayed deal eventually got done, nearly all the SPAC’s shares were redeemed for cash value before the merger. In other words, the SPAC’s investors weren't interested.

That’s the cloudy environment that I2PO, Deezer’s suitor, is wading into. In today’s volatile market, SPAC investors may favor publishing companies and record labels over digital platforms because music assets are seen as counter-cyclical to prevailing market trends – if the economy goes into a recession, people will still buy music. One music-focused SPAC, the $230 million Music Acquisition Corporation, has yet to publicly identify a takeover target and has until March 2023 to complete a merger. Another SPAC with music potential, the $575 million Liberty Media Acquisition Corp., has until Jan. 2023.

In October 2021, Billboard highlighted a handful of companies that could possibly go public. Among them was Sony Music Group, the No. 2 music company behind UMG, though Sony Corp. has not indicated any interest in spinning off SMG. German media giant Bertelsmann could spin off BMG, the No. 4 global music publisher, although it has not indicated a desire to do so. Nor have IPO candidates Concord and Primary Wave given indications they are considering going public. With on-demand streaming growth and new business fueling industry growth, music remains a good financial bet. But these and other companies may need to ride out 2022 rather than test the IPO and SPAC markets during the downturn.