Image: An Aerial View Of Europe's Tomorrowland Festival
If you pay attention to EDM news and business takeovers you should recognize the name SFX Entertainment. And for those who do have no clue, they just locked down the remaining 50% percent acquisition of b2s, part of ID&T, which organizes such international festivals such as Tomorrowland, Sensation (which debuted in the U.S. last year), and Mysterland. Now that they have 100% ownership of B2S, this makes them the world’s largest producer of live entertainment in our beloved world of electronic dance music.
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As with any investment, it's risky, and SFX stock is not looking to be in great shape at the date of this article's publication (it has dropped over $4 a share since the initial pubic offering). Regardless, with the recent acquisitions and such a large market share in the EDM business, some of you may be thinking, "is it time to invest in SFX?".
Investopedia, an online finance site, is speculating that SFX, while at the moment a hot IPO that has fallen below their offering price, could turn around if they are consistent in its delivery of solid EDM event offerings. This could build quite a shareholder base in the future.
SFXE went public in October at $13 a share, and eventually moved below $9, where it remains today. The company produces roughly 30 major annual outdoor music events and another 700 to 800 indoor concerts every year. SFX's focus on electronic dance music has been a sweet spot, with such festivals seeing a 40% hike in attendance from 2007 through 2012, compared with a 2% gain for the broader industry...
A series of upfront investments ahead of planned growth means that margins on EBITDA (earnings before interest, taxes, depreciation and amortization) hover around 5% to 6%. SFX has acquired a dozen smaller rivals in the past 18 months (accounting for $350 million in revenue), and management is in the process of streamlining overhead. They believe that this business can generate 20% EBITDA margins once the acquisition strategy has ripened, but investors are taking a wait-and-see attitude."
Here are a couple of other things to think about:
1. Some investors are concerned that electronic dance music might go out like last year’s Versace. Will it be able to maintain it’s profit and consistency?
2. It seems that SFXE has some legal bits to tie up with two disgruntled employees sued because they were allegedly promised $100 million in shares at the IPO.
Investopedia sums its up with, “This is clearly a messy debut for this concert promoter, yet investors will have a fresh chance to gauge the health of this business when fourth-quarter results are released in coming weeks. A clear path to higher EBITDA margins will be a key catalyst for a share price rebound.”
Even with a few preliminary quandaries that face SFXE, I think it might be wise to consider investing in the company, as the CEO Robert Sillerman has excellent credentials, and EDM culture shows no signs of slowing down. So shall we stay tuned?