EDM empire SFX looking at probable sale of assets

The global EDM empire SFX Entertainment, whose assets include Australia’s Totem OneLove Group which runs the Stereosonic festival, is looking at options including a sale of some or all of its assets.

It announced it has authorised the “continued exploration of strategic alternatives for the company, including the sale of all or substantially all of the company’s assets in whole or in part.” The deadline for offers is October 2.

Late last week, CEO Robert Sillerman missed a deadline to disclose financing for his tender offer of $5.25 per share to take SFX private. Shares dropped to a low of $1.38. Now it appears that SFX may spin off parts of its business, which includes DJ online resource and streaming service Beatport and a number of major EDM festivals including Tomorrowland, TomorrowWorld, Electric Zoo, Mysteryland, Sensation, Disco Donnie Presents and Life In Color.

Its 2015 Q2 earnings announced last week saw a 48.3% year-on-year revenue increase to US$121.1 million but its net loss rose by 36.2% to $48 million.

Sillerman started SFX Entertainment in 2012 as the electronic dance music boom exploded. With proceeds of a $260 million IPO, he began acquiring over 50 promoters, festivals and other EDM assets as ticketing company Paylogic and artist management firm TMWRK.

He acquired Stereosonic and owners Richie McNeill and Dror Erez’s company Totem OneLove Group in October 2013 for a reported A$75 million as part of a touted expansion into Australia and the Asian market.

But in the past 12 months, SFX has run into problems. These included the loss of three key executives, cashflow issues – which saw embarrassing late royalty payments to labels – a drop in stock and a lawsuit against 67-year-old Sillerman. Trying to solve part of the problem by going private was plagued by financing problems and a lacklustre response from investors.

A report by Billboard on what went wrong identified the problem as Sillerman’s strategy to run a block of individual operators rather than as part of a conglomerate under strong guidelines, as rivals as Live Nation did. An insider told Billboard that Sillerman’s purchases didn’t always make sense, adding, "He overpaid in cash and left individual operators with complete freedom to manage the businesses they just sold.”

Steven Azarbad, CIO at Maglan Capital, also told Billboard that SFX’s performance was disappointing, and that although it expanded its revenue as promised, it failed to convert popular festivals and brand sponsorships into cash flow and earnings growth. "It's hard to have confidence in the business."