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Investors Concern and Pandemic Overenthusiam: Digital Music Group Believe Taken Private

On February 12, French Digital Music Company Believe announced it received a €15 in cash per share offer valuing Believe at €1.52 billion to take over the company. The offer comes from a consortium formed by US investment firm TCV, Swedish private equity group EQT and Denis Ladegaillerie, the Chairman and CEO of Believe. They will purchase 71.92% of the company and make a full offer for the remaining shares. This will take Believe private after three years of listing in Paris since the 2021 IPO. Citigroup acted as the financial advisor to Believe. The tender offer is expected to be filed in the second quarter of 2024.

Believe is a French music company that operates as a digital music distribution and artist services company. It provides a range of services to musicians, record labels to help them distribute, promote and monetize their music. Believe distributes music on behalf of their clients on music platforms such as Spotify, Apple Music and Amazon Music. It also helps musicians to build their careers and reach a wider audience, offering services including marketing and promotional support, playlist pitching, social media management, analytics and insights, and rights management solutions. Believe is known for helping smaller independent musicians to maximise their earning and boost their visibility, It has an atypical business model and faces competition from larger companies including UMG(Universal Music Group). Believe launched an IPO in June 2021, in the midst of COVID during a wave of optimism around digital media revenues. The share price of Believe has been falling since IPO, over the same period other major companies including Spotify and Netflix faced similar share price decline. Believe’s buyer, TCV, is a prominent venture capital firm based in Menlo Park, California that has successfully invested in Silicon Valley companies like Airbnb, Facebook and Netflix.

Rumours of plans to take Believe private started in the start of January 2024. Private ownership will allow Believe to do deals much quicker. The slightly higher risk profile deals may also be possible given that Believe is not a public company anymore. This could bring growth to the company and open up opportunities for strategic changes. Believe’s business model is appealing to TCV and EQT. They have been traditionally focused on high-growth potential companies and Believe’s edge lies in delivering a service-driven business which allows significant growth and new opportunities. Believe was valued at a similar multiple to UMG but has a much lower debt ratio, which also makes it an attractive business. Believe also has a data-driven approach using analytics to track artist performances, streaming trends and consumer preferences which also contributes to the growth potential of the company. The private equity capital obtained after the acquisition will also help facilitate new deals to fuel future growth.

After the rumour of the potential takeover deal, Believe’s share price rose from €9.73 on January 10th to €12.40 on February 9th. This is an increase of more than 27% in just a month; the offer of €15 further adds a 21% premium to the share price which reflects the consortium’s significant confidence in Believe and the digital music streaming industry. However, this is still significantly lower than the €19.5 IPO price, It is reported that some music fans are not happy with the offer price which is well below the listing price. From an EV/Sales perspective the offer is also not very attractive. Regulators and Belive’s board support the offer, but the offer will be realised only after they gain backing from holders of 90% of the share capital.

In conclusion, the private takeover of Believe is due to its share price decline and worried investors, but will lead to future growth opportunities and strategic changes for the company.

Written by: Jessica Feng

Sources: Mergerlinks, Reuters, Financial Times, WSJ, Believe Press Release, Complete Music Update

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