SFX Entertainment's powerful Chairman and CEO Robert Sillerman announced some news on Tuesday that probably won't come as a surprise to followers of EDM: he's decided to buy all remaining shares of his baby (SFX) and take the company private at $5.25 per share in cash. The transaction (a unanimous vote by the board) is valued at 774 million and current stockholders can elect to retain stock in SFX under some undisclosed conditions. Here's why and here's what it means:
Firstly, let's recap (if you know what SFX is all about skip this paragraph) – SFX is an electronic dance music company that you should be well aware of. They own Beatport and are linked with all of your favorite festivals and EDM-hungry companies including T-Mobile, Yahoo, MasterCard, and others. To see how quickly Sillerman has taken over the scene since SFX began after his Live Nation project in 2011-2012, look at Yahoo! Finance for up-to-date acquisitions. The company is responsible for Tomorrowland, TomorrowWorld, Mysteryland, Sensation, Stereosonic, Electric Zoo, Disco Donnie Presents, Life in Color, Nature One, Mayday, Decibel, Q-Dance, Awakenings, React Presents, Beatport, Flavorus, Paylogic, and others. And it's not stopping – Sillerman is clearly trying to buy as much as he can.
Last February, he proposed to take the company private “with an offer to buy all outstanding shares at $4.75 per share.” See the proposal here. This week, he acquired the rest of the company (after filing an IPO in 2013 when NASDAQ welcomed the company into the shark pool under the name SFXE). By acquiring the remaining 62.6% of SFX (he owned just under 40% before), Sillerman has full control – and taking the company private has some advantages:
1) Shareholders (and the CEO) can buy and potentially benefit from significant financial gain in the future.
2) There are less regulations now on SFX because of the lack of reporting facts, figures, and other requirements that private companies don't have to deal with anymore.
3) With so many different projects on the agenda already at SFX, less forms and maintenance will give the company more time and money to focus on long term goals.
4) Based on the ups and downs of SFX already, this will keep their reputation at bay. The company relies heavily on a vast festival schedule and suffered losses of over 130 million in the 4th quarter of 2014. However, they only had a couple shows during that quarter – suggesting it was just part of the changing tide. 2015 projections expect gains up to 4x that amount as attendance continues to go up. Many investors might feel more comfortable going after SFX with less public ups and downs.
5) SFX is under a large microscope and everyone is watching. This deal changes that and makes it possible for the company to go about their business without as much traffic from competitors – who could easily access their information before.
Yesterday, shares of SFX Entertainment ended the day up 20% at $4.96. At that price, buying shares of SFX Entertainment would give a 5% return when the deal closes before the end of the year. That's going to be attractive to a lot of potential buyers. Read an article about why SFX could be a good buy.