Believe has cash ‘firepower’ for acquisitions in 2023. What’s it going to buy?

Believe Founder and CEO Denis Ladegaillerie

It’s been nearly two years since Paris-headquartered music company Believe floated on the Paris Euronext.

On March 15, 2023 the company published its second full-year financial results since becoming a publicly traded entity.

Key highlights for Believe, which also owns DIY distributor TuneCore, included annual revenues of €760.8 million in FY 2022. That converts to just above USD $800 million (at average annual exchange rates as per the IRS).

That €760.8 million annual revenue figure for 2022 was up by €183.6 million YoY, or 31.8%, which marked an acceleration in growth versus the prior year for Believe.

The firm grew its annual revenues by €135.8 million YoY (+30.7%), to €577.2 million (USD $682m) in 2021.

Perhaps the most important change from Believe’s 2021 vs. its 2022?

Within the company’s earnings release for FY 2022, Believe reported that it achieved positive free cash flow of €52.0 million. In the prior year, it posted negative annual (-€30.7m) free cash flow.

This new free cash flow, according to Believe, has boosted its “firepower for M&A” in the subsequent 12 months.

The firm said in a note to investors that it “expects to leverage [our] cash to resume its acquisition strategy in FY ’23 driven by opportunities created by current market conditions”.

So where can we expect Believe to direct its acquisition strategy in 2023?

Its activity in the final few months of 2022 gives us a good indication.

Speaking on March 15, on a company call with analysts following the publication of its Q4 2022 results, Believe Founder and CEO Denis Ladegaillerie explained that his company “felt that market conditions in 2022 were not quite right to do full-blown M&A”.

He added: “Nonetheless, at the end, in Q4 2022, and [in] recent months, we have started re-engaging on a few strategic partnerships”.

“We expects to leverage [our] cash to resume [our] acquisition strategy in FY ’23 driven by opportunities created by current market conditions.”

Believe in investor note, March 2023

Ladegaillerie pointed to three new partnerships (see slide below) as examples of this “re-engagement”: (i) Structure; (ii) Panorama Music; and (iii) Madizin.

Believe explained that these deals – two strategic investments in Europe and one in India – would “create labels with talented partners who provide additional sourcing capabilities on top of their expertise”.

In France, Believe invested in Structure, described as a “new French pop label”, through which it is “partnering with two successful producers, behind the recent success of several multi-platinum French pop artists”.

Believe says that this partnership further expands its “sourcing capacities and penetration of the French pop market,” where it has recently invested in France-based music companies PlayTwo and Jo&Co.

According to Believe’s financial results, on December 19, 2022, it “subscribed to the capital increase of Structure PY SAS and now holds 24% of the company’s share capital”.

Believe’s 2022 also saw it invest in Madizin Music, a Germany-based brand managed by what the company says are “two renowned producers, composers, and entrepreneurs”.

With this partnership, Believe notes that it expands its presence in the German language music market including Pop and traditional Schlager music which, the company says has “just started their digitalization”.

Interestingly, Believe rival BMG made a major acquisition of its own in Schlager music last year, buying Germany’s largest independent label – Telamo – which is a specialist in the genre.

According to Believe’s financial statement, it now owns a 51% stake in Madizin (see below).

In India, Believe says it signed an “exclusive agreement” with Panorama Music, which it says was recently founded by “a prominent Indian film producer, distributor and studio executive in India’s music and entertainment industry who is behind several Bollywood blockbusters”.

Believe says the deal will accelerate its expansion in the Bollywood Original Soundtrack market.

“We estimate that we have a number of these opportunities coming to us in 2023, as well as the changes in the market are now offering quite interesting opportunities to resume [a] much more active acquisition strategy in 2023.”

Denis Ladegaillerie

Added Ladegaillerie on the earnings call: “We have three agreements signed with top local talent management companies in Germany, in France and in India about developing local artists in all these three categories in some of the largest market segments.

“These are teams that were previously working either with traditional labels, that have demonstrated a great track record of success that were looking for a new partner for the next phase of their development in the digital world.

“We estimate that we have a number of these opportunities coming to us in 2023, as well as the changes in the market are now offering quite interesting opportunities to resume [a] much more active acquisition strategy in 2023.”

Elsewhere, within Believe’s financial report, the company reveals that on November 16, 2022, it acquired a majority stake of 53% in France-based record label Morning Glory Music SAS (“MGM”) for €3.942 million ($4.14m)

According to the report, “a call-put option on the remaining 47% exists with two tranches over two separate exercise periods, in 2026 and 2029.”

An official announcement video landed online a few months ago confirming the marriage between Believe and Morning Glory, which we’ve included below.

It announced that Morning Glory’s hip-hop-leaning roster included artists including Zkr (who has 1.4m Spotify monthly listeners today), Landy (2.3m), and Favé (2.1m).

On the earnings call last week, Nicolas Cote-Colisson of HSBC asked Believe’s Ladegaillerie to elaborate on the company’s acquisitions strategy.

Commenting on the types of assets Believe is looking to buy in 2023, Ladegaillerie said: “Great companies with great management teams, aligned to strategies with capabilities in markets or in terms of music that we want to strengthen, and where we do think that we can grow.”

Later on the call, Ladegaillerie commented further on the company’s M&A strategy, explaining that Believe will “focus on high-growth geographies where we can accelerate the growth of our target.”

He added: “The focus is going to be on the same thing as before, which is strengthening capabilities in areas or in geographies where we are already present and where we do feel that we can accelerate growth of the companies that we do acquire”.

  • All EUR-USD conversions in this story have been made at the average annual rate as provided by the US Inland Revenue Service (IRS)

Music Business Worldwide

Related Posts