No deal for us is the same, however there are broad criteria that we look to apply to any given proposition.
If the record label/catalogue provider is a profitable company then we are able to a pay a purchase price of between 2 and 6 times the profit figure for the previous 12 months. The exact multiple of profits we are prepared to pay depends on various factors such as a) length of term of rights b) predicted future sales potential of specific genre of music c) legal complications connected to the artists / catalogue and d) resources needed to maintain the catalogue.
- A record label generates $50k per year profits
- It is free of litigation
- Owns the rights for a long time
- Requires low overhead to maintain
- Has a good track record of sales
Then we would be able to offer a 5 or 6 multiple, i.e. $250k or 300K
If the record label is not profitable or if the rights are not currently within a company structure then it is slightly more complicated to value, however as a rule of thumb we would look to pay a acquisition cost that is equal to a sum that we believe we could comfortably recoup within a 2-5 year time period. If the label does not seek an outright purchase, then we actively consider a merger scenario where ongoing profits are shared, possibly with a portion paid up front aswell.
The process for acquisition or merger is usually along the lines of the following steps;
- Initial contact with Music Gain
- Series of meetings and/or phone conferences to determine mutual interest
- Verbal deal proposals
- Written 3-4 page term sheet / heads of terms detailing the high level deal structure
- Exclusive negotiation period of 3-6 weeks during which time a) due diligence is performed b) final contract is drawn up
- Competition of the deal and payment / asset transfer
The whole process requires significant input and activity from both sides. The due diligence period can be lengthy with larger companies. The whole process usually takes between 4-8 weeks from term sheet stage.
Although we prefer not to , we have completed deals in a compressed time frame where financial or creditor pressures on the record label side dictate the pace of events.