American EDM giant SFX Entertainment has outlined its imminent acquisition of Australian company Totem OneLove Group, the promoters of the massive Stereosonic festival, in their initial public offering prospectus overnight.
- $75 million of SFX’s IPO revenue to be used to buy Totem Onelove
- SFX shares drop 8.5 percent on first day of trading
- Risks of the EDM festival market raised
Listed on the US stock exchange to raise $US260 million, the company indicated a chunk of those funds will go towards the Totem acquisition, which they have agreed to pay $AU75 million for 100 percent of. The deal is made up of $60 million in cash and $15 million in common stock of SFX. They paid a deposit of $5 million in May.
In 2012 the success of Totem’s Stereosonic festival established the company as one of Australia’s biggest promoters. With 15 events and five festivals, they had a combined attendance 247,000 punters. This deal also cements their place as a force on the global dance music landscape.
SFX’s 65-year-old Chairman and Chief Executive Officer Robert Sillerman – who owns 57 percent of the company – has made concerted efforts to turn SFX into a global EDM (they’re calling it electronic music culture, ‘EMC’) powerhouse and capitalise on the genre’s recent boom in America. Investors did not share his vision overnight however, after the company opened at $13 per share it fell 8.5 percent during trading to close at $11.89. At one stage it was down as much as 17 percent. American financial pundits have placed it amongst the worst-performing IPOs of the year.
In its prospectus SFX outlined a number of risks the company faced, admitting that if the popularity of their festivals, events or online businesses were to falter the business would suffer. They also admit that if the EDM bubble bursts they would struggle.
“Maintaining the strength of our festivals, events and online businesses will be challenging, and our relationship with our fans could be harmed for many reasons,” they wrote, “including the quality of the experience at a particular festival, our competitors developing more popular events or attracting talent from our businesses, adverse occurrences or publicity in connection with an event and changes to public tastes that are beyond our control and difficult to anticipate.”
As well as Totem, SFX also controls – or has deals in place to acquire – website Beatport, North American promoters Disco Donnie Presents, Made Event and EZ Festivals, German promoter i-Motion GmbH Events & Communication, American venue manager MMG Nightlife, branded events promoter Life In Color and international event content providers ID&T Holding. That collection of companies means SFX has interests in Tomorrowland, Sensation, Mysteryland, Q-Dance, Electric Zoo, Nature One, MayDay, Ruhr-in-Love, Life In Color as well as Australia’s own Stereosonic.
Infrastructure costs, insurance costs and the possibility of having to cancel events having already paid the up-front costs and potential illicit drug use at their events were also identified as areas that could harm the business.
“Illegal activities or conduct at any of our events or venues may result in negative publicity or litigation,” it reads.
Despite the risks SFX believes “we are the largest producer of live events and entertainment content focused exclusively on the electronic music culture, based on attendance and revenue. We view EMC as a global generational movement driven by a rapidly developing community of avid followers among the millennial generation. Our mission is to enable this movement by providing our fans with the best possible live experiences, music discovery and connectivity with other fans and events.”
Totem’s financial details were also revealed in the prospectus, with the company having assets of $6,098,000, $5,072,000 of which is cash. They have $4,257,000 in liabilities, $4,058,000 of which is accounts payable and accrued expenses. SFX estimates the worth of Totem’s fan database at $11,442 and their trademarks at $40,065.
As part of Totem’s deal they have the option to sell their shares back to SFX at the $13 per share initial public offering price after two years.
Expanding to two days for 2014, this year’s Stereosonic festivals will be headlined by David Guetta, Armin van Buuren and Calvin Harris. Totem Onelove Group's Managing Director was ranked at seven in this year's AMID Power 50 of Australia's most powerful music industry identities.
TheMusic.com.au has requested comment from Totem Onelove Group.