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2018 U.S. Middle-Market Manufacturing M&A Deal Value Accelerates


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Technology, Media & Telecommunications

Spotify’s Direct Listing Gamble Pays Off

Capital Markets
2018 U.S. Middle-Market Manufacturing M&A Deal Value Accelerates

Apr. 16 2018 — U.S. merger and acquisition activity hit the ground running in 2018, with announced deal value accelerating to its fastest start since 2000. Middle-market manufacturing M&A activity is also off to a much better start than last year.

Year-to-date as of February 7, 2018, there have been about $1.28 billion of middle-market manufacturing M&A transactions announced, compared to $622.1 million as of the same date in 2017. The rebound in activity is welcome after middle-market M&A activity in the manufacturing space plunged last year, falling more than 25% from $13.55 billion in 2016. If 2018 continues as it has begun, announced middle-market manufacturing deal value could once again top $12 billion.

For the purposes of this analysis, S&P Global Market Intelligence defined middle-market M&A activity as deals valued at $25 million to $500 million. We included transactions for which deal value information is available through S&P Capital IQ, an offering of S&P Global Market Intelligence. The analysis captures transactions within the following sectors, as defined on S&P Capital IQ: aerospace and defense; building products; construction and engineering;  electrical equipment; industrial conglomerates; and machinery.

Within this M&A category, the largest deal of 2017 was private equity firm Lindsay Goldberg's $500 million investment in Lexington, Ky.-based fan manufacturer Delta T Corp. Another top middle-market manufacturing deal came when European aerospace firm Sonaca SA agreed to acquire St. Charles, Mo.-based LMI Aerospace Inc. (NasdaqGS:LMIA) from an investor group for approximately $432 million, including assumed debt. This transaction was one of several private equity exits from manufacturing company investments in 2017.

The third-largest middle-market manufacturing deal of 2017 also involved a European buyer and private equity seller. U.K.-based Spirax-Sarco Engineering plc (LSE:SPX) purchased Pittsburgh-based thermal technology company Chromalox Inc. from Irving Place Capital for $415 million in July. Irving Place Capital
and Chromalox management had acquired a controlling stake in the company in December 2012.

Another foreign buyer made the fourth-largest U.S. middle-market manufacturing M&A deal of last year, although this transaction did not involve a private equity firm. In August 2017, Japanese industrial machinery firm Tsubaki Nakashima Co. Ltd. (TSE:6464) acquired the global precision bearing components business of Tennessee-based diversified industry company NN Inc. (NasdaqGS:NNBR).

US middle-market manufacturing M&A

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Technology, Media & Telecommunications
Spotify’s Direct Listing Gamble Pays Off


Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion.

Apr. 06 2018 — The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion. That compares to a trading multiple of just 1.0x revenue for Pandora as of the same date, but Spotify’s higher trading multiple is justified by its higher proportion of paying subscribers among its listeners and its growth outside the U.S.

Spotify Technology is the parent of Spotify AB, the Swedish operator of the popular Spotify streaming service.

Company guidance for full year 2018, provided in Spotify's March 26 8-K filing, is revenue of €4.9 billion to €5.3 billion, up 20% to 30% year over year, and a gross profit margin of 23% to 25%, with an operating loss of €230 million to €330 million including an estimated total cost for the direct listing of roughly €35 million to €40 million in the second quarter.

Spotify Technology S.A. share price and market capitalization

The 8-K also shows Spotify has ambitious monthly active user, or MAU, and premium subscriber growth targets for 2018, with MAUs projected to increase by 26% to 32% year-over-year to 198 million to 208 million and total premium subs growing 30% to 36% to a range of 92 million to 96 million.

At the end of 2017, Spotify had reported 157 million MAUs and 71 million premium subs. Apple Music came in second place with a reported 36 million subs as of February 2018; based on reports from the Wall Street Journal, the company is growing at a monthly rate of 5% compared to 2% at Spotify. According to a Forbes article on April 4, Apple Music just reached 40 million paid subscribers. Inc. has indicated it is the third-largest on-demand streaming music company behind Spotify and Apple Inc.'s Apple Music with a reported 16 million subscribers between Prime Music and Amazon Music Unlimited. That leaves Pandora Media Inc. in fourth place with 5.5 million paid subscribers, although it has a larger ad-supported user base with 74.1 million MAUs reported at the end of 2017.

Based on reports by Music Business Worldwide on April 4, Sony Corp.'s Sony Music, which had owned 5.71% of Spotify shares prior to the first day of trading, sold 17.2% of its stake in the company, representing a little less than a 1% total share, for over $250 million based on the April 3 closing price of $149.01.

In Spotify's prospectus filed April 3, Sony Music, before the April 3 shares sale in the first day of Spotify trading, was the fifth-largest shareholder behind Spotify co-founders Daniel Ek (27.1%) and Martin Lorentzon (13.1%), followed by Tencent Holdings Ltd. (9.1%) and Tiger Global (7.2%).

As reported by Music Business Worldwide, according to a memo released by Sony, the company projects that the unrealized valuation gain and the proceeds from the sale of Spotify shares will amount to roughly 105 billion Japanese yen, approximately US$1 billion, for the first quarter of the fiscal year ending March 31, 2019.