SFX Entertainment (NASDAQ:SFXE), a New York, New York-based electronic music event producer, plans to raise $200 million in its upcoming IPO on Wednesday, October 9, 2013. The firm plans to offer 16.7 million shares at an expected price range of $11.00-13.00; at the midpoint of that range at $12.00 per share, SFXE would command a market value of $1.1 billion.
SFXE filed on June 25, 2013
Joint Managers: UBS Investment Bank, Jefferies & Co., Deutsche Bank
Co-Managers: BTIG, Stifel
SFX Entertainment is the largest producer of live electronic music culture events in terms of event attendance and revenue. The firm presents numerous events and festivals, the best-known of which include Tomorrowland, Mysteryland, Life in Color, the Sensation festival, and Q-dance.
SFXE's events have attracted increasing numbers of fans over the course of the past several years: on a pro forma basis for completed acquisitions, the firm attracted 1.3 million fans in 2012, a 36.0% increase from 2011; and on a pro forma basis for completed and planned acquisitions, the firm attracted 2.8 million fans in 2012, a 22.2% increase from 2011. The firm is now over a decade old and has developed a loyal fan base surrounding both its brand and its events.
SFXE offers the following consolidated figures for itself and its recent acquisitions in its S-1 balance sheet for the year ended December 31, 2012:
Total Revenues: $238,624,000
Net Loss: ($67,359,000)
Total Assets: $566,066,000
Total Liabilities: $211,143,000
Total Stockholders' Equity: $336,394,000
Based on its rapidly expanding markets and unique niche, we recommend that aggressive investors consider purchasing SFXE if it prices within the expected range of $11 to $13 and if the deal size is not increased.
Investors should keep in mind that SFXE's recent acquisitions don't seem likely to alleviate its income problem; several of these acquisitions also posted losses, and none generate income on a scale approaching SFXE's current losses. Equally concerning is the massive compensation that SFXE's executives are receiving despite high losses: in 2012, CEO Robert F.X. Sillerman received total compensation in excess of $15 million, while Vice Chairmen Mitchell Slater and Sheldon Finkel received total compensation of $3.7 million and $7.7 million, respectively.
Electronic music events are growing massively in popularity in the US; from 2007 to 2012, attendance of the five largest US events increased 41% annually. The potential for introducing popular European EMC events like Tomorrowland into the United States may also soon prove a significant source of increased attendance and revenue for SFXE and other EMC producers. Of course, as with any music-based firm, SFXE is extremely susceptible to changes in public taste. If and when interest in electronic music declines, SFXE's fortunes will decline with it. SFXE, like the rest of the music industry, faces significant competition from on-demand music services including Apple iTunes (NASDAQ:AAPL), Rhapsody, Spotify, Pandora (NYSE:P), and Amazon (NASDAQ:AMZN).
SFXE's massive revenue growth, combined with its lack of profitability, may indicate significant underlying problems related to rapid growth, including insufficient experienced executive and management personnel and difficulties in integrating the firm's numerous acquisitions into the firm's structure.
As noted above, SFXE's top executives received very high compensation in 2012 despite the firms significant losses. That said, CEO Robert F.X. Sillerman is very experienced, having served as SFXE's CEO since its inception and having served as CEO for other entertainment firms including Viggle, Inc, Circle Entertainment Inc, and CKX Inc.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SFXE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is neither a recommendation to buy or sell shares, and investors should always do their own research including reading the S-1 and talking to their investment advisor.