“Believe must remain independent.” Its takeover would have “destructive consequences”. The union of independent producers and distributors UPFI does not mince its words in the tribune which he devotes to the uncertain fate of the French music heavyweight, Believe. Listed on Euronext Paris since 2021, the group now wishes to escape. And this project began to take shape around the offer from a consortium made up of its founder Denis Ladegaillerie, a current investor, TCV, and the Swedish fund EQT. But the matter became more complicated in March when Warner Music Group (WMG) expressed its interest in Believe, indicating that it was considering a more generous offer. “A takeover by Warner would be a disaster,” believes Vincent Frerebeau, boss of the label Tôt ou Tard, which produced Vianney, Yael Naim and Vincent Delerm and of which Believe holds a minority stake.
That the stock market battle around Believe is causing such a stir is revealing. Revealing first of all the place that Believe has taken in the world of music. If the group is not very well known to the general public, it is the symbol of a real success story French. In 2005, Spotify and Deezer were not born. The industry still makes an overwhelming portion of its revenue from CD sales. Denis Ladegaillerie then took the gamble of setting up a group totally focused on online music distribution. At the time, no one believed it. Since then, the steamroller of streaming has passed: 500 million people around the world are now subscribed to these platforms, such as Spotify or Deezer, which provide access by subscription to a huge catalog of titles. “Streaming today represents 67% of revenues in the music industry,” underlines Pierre Niboyet, director of industry relations at Music Tomorrow, a consultancy specializing in musical innovation. The risky path Believe took turned out to be the highway to success.
The group has taken a technological lead that its competitors are struggling to catch up with. He even had the luxury of moving up the value chain, from distribution to production, by buying Naïve and developing in-house labels. “Believe now offers a very complete offering. Basic distribution services for artists who want to promote themselves – or even amateurs who enjoy putting a track on Spotify or Deezer. Then a richer offering for artists who are just starting out. to gain scale, and want to be more supported. All the data that Believe has at its disposal allows it to identify promising talents, which the group and its various labels can then decide to produce”, underlines Joy Sioufi, partner at GP Bullhound who has advised Believe in the past.
Believe, the alternative “major”
With its 1,900 employees and its network of experts in more than 50 countries, the group is no longer a simple French unicorn. “Believe has become a global music giant, a serious alternative to the three majors,” underlines the expert. Its international strategy is also ingenious. “They have been well positioned for several years in emerging markets, particularly in Asia Pacific and Africa which account for 25% of turnover and have grown by another 15% in 2023,” explains Pierre Niboyet.
But the emotion caused by a possible offer from Warner for Believe is not just a reflection of the scale taken by the Frenchman. It is also revealing of the malaise in which the world of music finds itself plunged today. After the enormous success of “Peer to Peer” and the boom in pirate downloads that this technology has generated, artists are now fighting to survive in the streaming jungle. A system which has certain advantages, but has shattered their economic model. Previously, artists had to convince producers to spend money to record their CDs and vinyls. “Today, everyone can put music online on Spotify. It’s both exciting and hellish because you are lost in a multitude of titles,” observes Vincent Frerebeau.
Temporality has also changed radically. Historically, artists received a significant portion of their income in the months following the release of their CD, effectively seeing very quickly whether it had been a success. The monthly platform subscription system changes all that. Here, income adds up little by little, stream after stream. With revenues of around 0.0035 euro cents per listen, it often takes several years to accumulate the millions of streams that will make the project profitable. “It has become much easier to distribute your music, but much harder to make a living from it,” summarizes François Welgryn, songwriter and creator of the InTenSe label. At the same time, industry has become highly concentrated. “The ten or so music multinationals of the 1990s have been reduced to three large entities,” points out Vincent Frerebeau. The Warner, Sony and Universal trio.
The AMF bangs its fist on the table
Like them, Believe does not engage in philanthropy. When he takes the gamble of producing an artist, it is because he senses potential to be exploited. And musicians who are too “niche” find, here as elsewhere, a closed door. While the industry has suffered two digital earthquakes in quick succession and is seeing the tsunami of artificial intelligence sweep over it, with its false voices that can be cloned in 15 seconds and its melodies that can be programmed at will, Believe, however, presents an aspect reassuring for the “little ones”. “The company has brought together thousands of independents, which gives weight to this community when it has to negotiate at the table of the streaming giants,” argues the boss of the Tôt ou Tard label.
But the stock market is the stock market, and the Believe affair reminds us that we must respect its rules. The consortium formed by Denis Ladegaillerie, TCV and EQT to buy Believe has arguments to put forward. “At a time when the majors are laying off workers, this option offers great development prospects for Believe while respecting its teams and its independence. It also has the support of the Social and Economic Committee, and shareholders representing 72 % of the capital”, argues a source close to the alliance. Still: his modus operandi has raised a few eyebrows.
“They did their business among friends, in their corner,” confides a Parisian analyst. The proposed price of 15 euros per share leaves professionals perplexed. “The introductory price of Believe in 2021 is 19.50 euros. The group claims to be two years ahead of its business plan, which indeed seems to be the case. Therefore, how can we justify an exit price at 15 euros?” asks Pascal Quiry, professor of finance at HEC Paris and co-author of Vernimmen, the “bible” for practitioners in the sector.
At the end of February, when Warner showed signs of interest in Believe, the consortium even tried to ward off the importunate by dropping ballast on one of the conditions of its offer, just to speed up the process. The AMF then bangs its fist on the table and forces the group to open its data room to Warner so he can make an informed decision. The major has until April 7 to submit its offer.
Overestimated IPO prices
“There is reason to believe that they will do one. Buying Believe is consistent for a group like theirs, given what Believe offers and the possible synergies between the two companies. Warner is a serious house, it would not agitate not this option out of malice,” judges a professional in the sector. The game promises to be interesting. If Warner goes there, he will have a lot of work to do to convince shareholders. And its offer will be closely examined by the competition authorities. If it throws in the towel, the consortium will undoubtedly have to improve its proposal. Since a price of 17 euros per share has been mentioned, it may be difficult to convince all shareholders that 15 euros is adequate.
“The sequence may awaken the interest of other players,” also underlines Jean-François Delcaire, the manager of the HMG Découvertes fund. Whoever wins, the battle around Believe in any case reminds us that the life of technological nuggets on the Paris market is not a long, quiet river. “The Paris Stock Exchange is still changing and in a phase of educating institutional investors on the new economic models of technological companies such as Believe,” underlines an expert. The rise in interest rates has also changed the situation. “Currently, small and mid-caps are under more pressure”, observed Jean-François Delcaire
Pascal Quiry notes for his part that the Paris market is facing “a fundamental problem”. “85% of companies that have been listed since 2014 now have a price lower than their IPO price, recalls the finance professor. Which suggests that the latter is too often overestimated. The number of players banking is more important here than in the United States. This increased competition undoubtedly encourages them to overpromise introductory levels, to win the mandate. Companies then have difficulty delivering the expected results. When the hurdle is higher than that of your competitors, it is difficult to cross the line.
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