Deezer: Pinault and Blavatnik wield Spac to whack Spotify

Disrupter of disrupters? Or swan song of the special purpose acquisition company? European investors are making that call over a deal involving music streaming service Deezer. The French group has reached terms with cash shell I2PO to list on Euronext Paris at a pre-money value of €1bn.

Bringing together billionaires François-Henri Pinault and Leonard Blavatnik, the new business aims to grab a growing share of the streaming market. That means taking on Big Tech and Spotify, which controls around a third of the market.

The deal permits a fascinating comparative study of a fevered Spac float versus the chilled, low-cost direct listing chosen by Spotify in 2018.

Deezer thinks it can distribute via third-party content providers in underexploited regions. That contrasts with the direct-to-consumer model pursued by Spotify, Apple and Amazon.

Record labels hoping to weaken the status quo may hum along to this tune. Deezer chief executive Jeronimo Folgueira highlights a distribution deal with German television channel RTL, which has its own streaming services.

Less positively, some Deezer distributors with physical stores were forced to close during the pandemic. Sales grew only 5.5 per cent last year to €400mn. In contrast, Spotify raised revenues by over a fifth to €9.7bn. The US-listed business should make its first profit this year.

Deezer sales growth moved into double digits in February. A target of €1bn in sales by 2025 requires further rapid acceleration. Blavatnik’s cross ownership of Warner Music should make that ambitious plan easier for Deezer to achieve.

If so, shares are cheap at a multiple of about one times 2025 sales or a discount of a quarter to Spotify’s valuation. The equation looks pricey on shorter-term forecasts.

In a Spac, shareholders are not all created equal. Investors joining via a private placing are getting their shares at a 44 per cent discount to those in the original, listed cash shell. Founders enjoy a 90 per cent discount. That imbalance may raise as many questions for investors from communitarian Europe as Deezer’s brave plan to disrupt the streaming oligopoly.

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