Dance music promoter SFX misses a step in market debut

Wed Oct 9, 2013 4:13pm EDT

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(Reuters) - Shares of SFX Entertainment Inc (SFXE.O), an electronic dance music festival promoter run by New York media mogul Robert F.X. Sillerman, fell as much as 18 percent in their debut as investors showed little interest in the industry's fastest-growing genre.

SFX's shares opened at $13 and touched a low of $10.64 in early trading, valuing the company at $857 million.

The company, which is yet to post a profit, raised $260 million from its offering of 20 million shares that were priced at $13 per share, the high end of the expected range.

"The offering was priced too high given the current market conditions. The market doesn't like companies that haven't made any money unless they are cloud computing companies," said Francis Gaskins, partner at IPO research company IPODesktop.com.

Sillerman is trying to bring the booming slice of the music industry under one flag through SFX, which was revived by him two years ago.

Electronic dance music and its star disc jockeys have become a money spinner since expanding beyond night clubs to live events where tens of thousands of people enjoy the fast pace and heavy percussion.

DJs such as David Guetta, Avicii and Tiësto have helped popularize the genre around the world with concerts featuring such musical acts as Lady Gaga, Katy Perry and Pitbull.

But the heavily fragmented dance music industry is getting fast saturated with several promoters such as Live Nation Entertainment Inc LYV.O and SFX trying to corner a larger share of the festival circuit.

"Competition is always a concern in a fragmented market. (SFX) don't have the playing field to themselves and Live Nation is a branded competitor," Gaskins said.

Sillerman has been aggressively buying up promoters and event organizers as he builds his dance music empire in the United States.

Earlier this year, SFX bought Life in Color, which organizes day-glow-paint-soaked concerts across the United States, and music site Beatport, a major download store for dance music.

The company also purchased the North American division of Holland-based ID&T Entertainment, the world's largest dance music concert promoter, which included the rights to host the Tomorrowland festival in the United States.

The purchase did not include ID&T's three-day Belgian festival, Tomorrowland, in the news for selling out all 180,000 tickets to its 2013 event in one second. The U.S. festival is known as TomorrowWorld.

SFX's spree of acquisitions helped it boost overall attendance at its various concerts by 36 percent on a pro forma basis in 2012, to 1.3 million concert-goers. (link.reuters.com/cyz63v)

The company's pro forma revenue for 2012 was $238.6 million though it is yet to post a profit as it continues to spend on acquisitions.

Sillerman will own 45.3 percent of the company if the underwriters exercise the over-allotment option, valuing his stake at more than $400 million.

MULTI-BILLION DOLLAR OPPORTUNITY

The global market directly associated with electronic dance music is projected to be worth about $4.5 billion in 2013, according to the International Music Summit Business Report. The summit, held in Ibiza, a hot spot for electronic music, is a prominent gathering of dance music professionals.

Digital track sales of dance and electronic music surged 36 percent to 53 million last year but still made up less than a sixth of rock music sales, according to Nielsen and Billboard's 2012 Music Industry Report.

In June last year, Sillerman said he was willing to spend more than $1 billion buying up dance music promoters and event organizers.

Sillerman's quest echoes his business strategy from the late 1990s when his company, SFX Entertainment, consolidated a large number of concert promoters, producers and venues and was bought by Clear Channel in 2000 for $4.4 billion.

Sillerman also formed CKX Inc, which bought 85 percent of Elvis Presley Enterprises, including the rock-and-roll legend's Graceland mansion, and 100 percent of Simon Fuller's 19 Entertainment, producer of American Idol.

UBS Investment Bank, Deutsche Bank Securities and Jefferies are the lead underwriters on SFX's IPO.

SFX shares closed down 8.5 percent at $11.89 on the Nasdaq.

(Additional reporting by Anil D'Silva; Editing by Maju Samuel and Saumyadeb Chakrabarty)

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