Toronto-based music publisher ole is being shopped, with the company looking for suitors to place minimum bids of at least $650 million to enter the process, while seeking an overall valuation of $800 million, according to numerous sources. The company confirmed to Billboard that it is involved in a recapitalization process.
Those sources suggest that the Ontario Teachers' Pension Fund, the main equity investor behind the more than $520 million in music assets acquired by ole over the last dozen years, is looking to cash out. While ole management is said to want to replace the pension fund with another equity sponsor, which would allow management and its staff to stay in place overseeing the catalog, it may not get that luxury. According to those sources, in addition to equity firms, some strategic competitors have also been contacted about participating in this sale process.
The company confirmed Billboard's reporting in a statement. "ole has hired RCB Capitol to conduct a process to recapitalize the equity portion of ole's capital structure," a company spokesman says. "It is certainly possible that some party may suggest buying the company, that is not the intention of this process. ole entered into a $500 million credit facility last summer. It remains well capitalized and will continue to operate as usual for the foreseeable future, including seeking acquisitions that make strategic sense."
Since its founding in 2004, ole has specialized in acquiring film, TV and production music, but it also has a catalog of pop, rock and hip-hop music. It has also made a point of signing Canadian artists and songwriters. According to a press release announcing a $500 million loan from a consortium of banks led by City National Bank, it had a catalog of 50,000 songs and 60,000 hours of TV/film music of all genres.
Its catalog includes songs by Timbaland, Aerosmith frontman Steven Tyler, Rush and it has struck various deals with Sony Pictures Entertainment, Nu Image, Cineflix, Compact Media and Millennium Films. Its operations also includes the MusicBox production music company as well as another production operation, Jingle Punks.
According to sources, ole produced $57 million in net publishers' share (NPS), or gross profit, which is in line with what the company's $60 million projection for 2016, it made last year in announcing a new credit facility. Furthermore, sources estimate the company's earnings before interest, taxes, depreciation and amortization (EBITDA) at about $35 million. While ole is a Canadian company, the financial data being circulated with the deal are in U.S. dollars, sources say.
That means with a minimum asking bid of $650 million and expectations of an $800 million valuation, ole and the Ontario Teachers are hoping that the assets trade for almost a 11.5 times to 14 times NPS multiple. While a catalog filled with a healthy chunk of iconic songs may be able to realize those kinds of multiples, sources say that ole's catalog only has about 13-17 percent of its NPS coming from its song catalog. Those sources say that TV, film and other audio visual secondary rights account for about half of its volume, while production music accounts for about 30 percent and master recordings about five percent.
Some industry sources question whether ole will reach its asking price because some of its revenue comes from administration deals, which means that particular income stream could disappear when the contracts expires -- that is, if the owner chooses to move to another administrator. Another source says that production music is work-intensive, so recording, marketing and other expenses will eat up more gross profit than simply representing iconic songs. Consequently, sources suggest that production music usually trades at lower multiples than songs, while film and TV music will have a hard time reaching a 10 times multiple.
Since the latter two categories account for more than 75 percent of the net publishers' share, and the multiple those types of assets usually trade at are lower than what a song catalog would trade for, ole could have a hard time getting suitors to put up a 11.5 times to 14 times multiple, some financial executives predict. Yet other sources remind that poking holes in valuations is a favorite tactic employed by suitors in negotiating acquisitions.