The board of directors of Downtown Music Holdings, parent company of independent distributors CD Baby and FUGA as well as a number of other publishing and rights management businesses, is considering a sale, a source familiar with the deal told Billboard.
Downtown, which publishes and manages the catalogs of John Lennon, Yoko Ono, Miles Davis, Wu-Tang Clan and many other artists, is in talks with private equity firms and at least one major music company as the family of the late Douglas Myers, a longtime backer of the company, is looking to pull out of its investment, according to two sources who asked not to be identified because the talks are private.
The music industry's burgeoning independent sector has seen a flurry of deal activity over the past year as both outside investors and traditional music companies seek ways to gain more control over the market for serving and distributing music from DIY artists, songwriters and indie labels.
In June, a consortium consisting of Denis Ladegayery, EQT and TCV acquired 95% of the outstanding shares of French music company Believe after Warner Music Group withdrew from a takeover bid it had made earlier this year. Later that month, Chicago-based private equity firm Flexpoint Ford acquired Create Music Group for $165 million. Last year, Apple veteran Larry Jackson raised roughly $1 billion to buy distributor Vidia as a driving force behind launching his new company, Gamma, while Excellation Music acquired indie distributor RedEye for an undisclosed sum.
“Market interest and excitement for our platform is growing at an all-time high. We remain focused on serving our customers and growing our business as we continue to drive innovation across the global music industry,” Downtown said in an emailed statement, declining to comment on a potential sale.
The market share of recorded music revenue generated by labels and artists who release music outside the major label system has been growing globally for nearly a decade. According to MIDiA research, the combined share of the recorded music revenue market generated by non-major labels and self-releasing artists will increase from 28.6% in 2015 to 36.7% by 2023.
Downtown was founded in 2007 by Justin Kalifowitz as a publishing house in New York and has rapidly grown into a global company with more than 20 offices around the world. Its scale makes it one of the most attractive acquisition targets in this segment of the music industry. Downtown reaches more than 4 million creators and serves approximately 50 million songs from 5,000 enterprise clients.
Downtown has previously explored a sale, in the process selling its 145,000-song publishing catalog to Concord for roughly $400 million in 2021. In recent years, Downtown has transformed itself from a major indie publisher into a full-stack music company.
The company has made more than 10 acquisitions in recent years, including creator-direct distributor CD Baby, business-to-business technology and distribution platform FUGA, rights management company AdRev, and service providers DashGo, Soundrop, Simbals, Found.ee, Curve and Sheer Music Publishing.
Downtown operates through four divisions — artist and label services, including CD Baby; distribution services, including FUGA; publishing services, including management company Songtrust; and royalty and financial services, including Curve — and is expected to generate about $130 million in net revenue, about $40 million in EBITDA and $900 million in total revenue, according to three sources familiar with the company's financials.
Sources said Downtown uses an agency accounting model to record its finances, with only fees from companies like FUGA counted as overall company revenue.
Sir Douglas Myers was a New Zealand businessman and the long-time chief executive of beverage company Lion Nathan before selling his stake in the company to Japanese brewer Kirin in 1998. Myers, who died in 2017, reportedly invested in Downtown because of his son Campbell Myers' love of music. Campbell Myers served as Downtown's director of business development for a year from 2009 to 2010, according to his LinkedIn profile.
Billboard was unable to identify which companies were in talks with Downtown, but Warner Music Group CEO Robert Kincl told investors in May that the company was exploring mergers and acquisitions that could expand its “low-touch” services for independent creators and labels, and in June the company hired Michael Ryan Southern, global head of music and live entertainment investment banking at Goldman Sachs, as its head of M&A.
“We have clear plans to develop this area of our ecosystem and are building solutions internally while remaining vigilant for M&A opportunities that could accelerate our capabilities,” Kincl said during WMG's quarterly earnings call on May 9.