Downtown ‘exploring strategic options’ with Raine Group – including possible sale

Justin Kalifowitz, CEO, Downtown Music Holdings

Downtown Music Holdings has been one of music’s most talked about companies for some time.

Now, MBW can reveal that the fast-growing firm has begun the process of “exploring strategic options” over its ownership and/or future funding, and has turned to New York and London-based Raine Group to handle the process.

Could the whole of Downtown be sold as a result of Raine Group’s remit? It’s a possibility for the right price, say our sources, as is a strategic partnership with a well placed suitor (or suitors).

MBW understands that another potential outcome from the process is simply for Downtown to raise a stack of capital to fuel its near-term expansion.

New York-headquartered Downtown is currently privately owned. In the past 18 months, the rapid expansion of Downtown Music Holdings – led by CEO Justin Kalifowitz – has included its acquisition of indie artist distributor CD Baby (and parent, AVL) in a $200m-plus deal. And at the top of this year, Downtown acquired recorded music digital services company FUGA for upwards of $40m.

Across its operations – which also include Downtown Music Publishing and publishing admin platform, Songtrust – MBW understands that Downtown Music Holdings is projecting annual revenues of over $600m for next year (calendar 2021).

With this in mind, an annual revenue figure in the region of $500m in the pandemic-affected year of 2020 seems likely.

Divining Downtown’s total market worth from these numbers is difficult, but a billion-dollar valuation doesn’t seem impossible.  For example, if Downtown posted a 15% annual EBITDA margin off that ≈$500m, it would require a 14-times multiple to reach the magic $1 billion mark. A 10% EBITDA margin would require a 20-times multiple.

A Downtown spokesperson confirmed to MBW today (October 13): “Downtown Music Holdings has engaged The Raine Group to advise us as we explore strategic options to fully realize our ambitious growth plans.”

Downtown owns a varied catalog of publishing copyrights. These include those acquired from global hitmaker Ryan Tedder in a reported $60m deal in 2017, as well as other acquisitions such as Downtown’s buyout of Good Soldier Songs earlier this year.

Over the past 13 years, Downtown has acquired ownership of the underlying rights to songs made famous by the likes of Beyoncé, Lady Gaga, Adele, Motley Crue, New Order, The Eagles, Aretha Franklin and Eric Clapton.

However, the majority of Downtown’s revenues are generated by services it offers to independent rightsholders, whether that’s music publishers, record labels, artists or songwriters.

The scale of those services is globally significant. For example, CD Baby alone counted 950,000 active distribution clients as of the end of Q2 2020. (Where ‘active’ is defined by an account with an asset signed up for distribution.)

Downtown Music Publishing, meanwhile, now represents over 30,000 songwriters – of which approximately 825 have direct publishing or co-publishing deals with Downtown – while Songtrust represents over 300,000 songwriters and 2 million songs.

Earlier this year, Downtown launched Downtown Neighbouring Rights as a new stand-alone business unit dedicated to chasing down global performance royalties. And last month Downtown inked a global admin deal with Wu-Tang Clan to represent the seminal US rap group’s catalog worldwide.

The news of Downtown’s capital raise process comes after a flurry of financial activity in the music rights sector. Yesterday (October 12), MBW reported that New York-based publisher Round Hill Music is set to IPO a new fund on the London Stock Exchange in November, through which it’s aiming to raise $375m.

Elsewhere, we recently learned that Downtown rival Kobalt Music Group – which also services songwriters, publishers, labels and artists – has begun its own process that could prospectively lead to a sale of the company.

Raine Group previously advised both AVL and FUGA (sale-side) during the process of Downtown’s acquisitions of both companies.Music Business Worldwide

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