SFX Entertainment (SFXE), which operates electronic dance music festivals like TomorrowWorld and Electric Zoo, pulled off its IPO today. The company priced the deal at $13, but might have been overly optimistic, as the price is down about 9% in early trading. The lead underwriters included UBS Investment Bank (UBS), Jefferies, and Deutsche Bank (DB).
SFX is the mastermind of Robert Sillerman, whose background in the music business goes back to the 1970s. For example, he started a company that acquired various radio stations and managed to sell it in the late 1990s for $2.1 billion. He then went on to create CKX, which purchased the rights to Graceland (the Elvis Presley estate) and “American Idol.”
Sillerman went back to his M&A playbook when he started SFX. The company, which was founded in July 2011, already has $239 million in revenues for last year. About $150 million from the IPO will be used to close four acquisitions.
The market is still highly fragmented, so expect more acquisitions. The growth potential for SFX also remains large, with the market projected to hit $4.5 billion in 2013, according to the International Music Summit Business Report.
Despite all this, could EDM ultimately be a fad? The genre has been around for about 20 years, with deep roots in Europe, and now the popularity is expanding into North America. So it doesn’t seem like a mere flash in the pan.
But, to get some more insight on this, I reached out to Jim McCarthy, who operates Goldstar (a top online platform for live events). He said:
“Even as we see demand for certain kinds of classic rock acts slow down, other genres pick up the slack. An SFX IPO shows that the demand for live entertainment will stay robust across time. People, even young people, are willing to pay lots of money to be at the events they’re interested in.
“Obviously the revenue growth is astounding for SFX, and even though the revenue multiple is pretty high compared to what you typically see, if you’re interested in live events and you’re a long-term player, this could be well worth looking at.”
So while the IPO might not have taken off immediately, it seems like SFXE has some solid long-term prospects.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
