By Lorenzo Mirone, Riccardo Colombo, Federico de Rosa (Bocconi University) and Aman Singla, Akhil Vajjhala, Siddharth Tripurani (New York University)
Photo: Viktor Forgacs (Unsplash)
Overview of the deal
Acquirer: Square, Inc
Target: TIDAL
Total Transaction Size: $297 Million
Closed date: March 4th, 2021
Target advisor:
Square, Inc, a financial services company founded by Twitter co-founder Jack Dorsey, is acquiring Tidal in a $297 Million cash and stock deal. The anticipated synergies arise from Square’s ability to give sellers new tools to make money; artists on Tidal can leverage Square to find support in the digital ecosystem. Jay-Z, Coldplay, Rihanna and Daft Punk are the artist-owners of Tidal who will be on the board of the new company. This deal is expected to improve Tidal’s subscription based consumer space in comparison to competitors such as Pandora and Spotify.
“Artists deserve better tools to assist them in their creative journey. Jack and I have had many discussions about Tidal’s endless possibilities that have made me even more inspired about its future. This shared vision makes me even more excited to join the Square board. This partnership will be a game-changer for many. I look forward to all this new chapter has to offer!” - Jay-Z, Board Member, Tidal
Company Details: (Acquirer - Square)
Square, Inc. is a San Francisco-based financial services and a merchant services aggregator. The company sells software and hardware payments products, providing digital tools to aid small business owners, entrepreneurs with managing payments using technology. The company was founded in 2009 in St. Louis, Missouri by Jack Dorsey, CEO and Co-founder of social network Twitter, and Jim McKelvey. Square launched its service and app in 2010. It had its IPO on the New York Stock Exchange in November 2015 with the ticker symbol SQ. It is now present in three different continents and many countries such as Canada, Japan, Australia, Ireland, Spain and the UK, together with the USA.
Founded in St. Louis, Missouri headquartered in San Francisco, California
CEO: Jack Dorsey
Number of employees: 3,835
Market Cap: $102.216 bn
EV: $101,86 bn
LTM Revenue: $9.5 bn
LTM EBITDA: 45.6 M
LTM EV/Revenue: 10.72x
LTM EV/EBITDA: 2,233.83x
Company Details: (Target - Tidal)
Tidal is a subscription-based music service launched in 2014 by Aspiro, a Norwergian public company, and acquired in 2015 by Project Panther Bidco Ltd. The company offers music service including podcast and video streaming service, combining high-definition music with exclusive content videos. The exclusive content videos are available through the artist ownership of the company, a key advantage as compared with other streaming services such as Spotify and Pandora Radio. In 2016, Tidal claims to have reached 56 countries and 3 millions of subscriptions.
Founded in Norway, headquartered in New York
CEO: Richard Sanders
Number of employees: 305 employees
Market Cap: NA
EV: NA
Projections and Assumptions
Short-term consequences
Square has helped millions of businesses start, run, and grow by providing them with tools needed for financial management. With Cash App, Square has made financial services more relatable and accessible to millions of customers. Square sees an opportunity to leverage those learnings to help musicians find new ways to support their work and make better decisions through TIDAL.
The rather unexpected nature of this deal prompted Square shares to drop by 6.75% immediately after the announcement was made. However, this doesn’t confirm disapproval from investors as the stock rallied within the week with further quotes from both parties. In the short-term, Apple Music, Spotify and other competitors will retain a competitive edge in terms of revenue. Regardless of Tidal’s growth in revenue in past years, its losses have been of the same measure. Artists on Tidal will have to leverage Square’s services to deliver new revenue streams.
Long-term Upsides
The largest stakeholders in this merger, the ones who stand to be affected the most, are the thousands of musicians that rely on TIDAL’s services to publish their music. Square looks to integrate its financial services with TIDAL, so as to benefit these musicians with easing their various cash flows. According to BusinessWeek, “When artists go on tour, they need credit for the gear and they need to set up payroll...But most artists either don't have the resources to handle all of these financial needs...they want someone to help them manage their finances.”
"Artists need cash flow management tools," said music industry expert Matt Pincus. "There's a lot of money flows going everywhere. The Square guys are in a good position to capture that."
Square could potentially benefit from an increased number of musicians turning to TIDAL as a result of this integration between music streaming and financial services. The company has a long way to go, but this merger with Square might be a push down the right path.
Risks and Uncertainties
Estimates say Tidal has control over less than 1% of over market share for music online streaming, ranking well behind other competitors such as Spotify and Apple music, which pose a significant threat for the firm both in the short-term and long-term. Thus, tackling industry competition remains crucial to ensure long-term advantage for Square and remains one of the most significant risks for the acquirer’s shareholders. In particular, it is essential squares support Tidal to invest in new ways to attract musicians, so to widen its music offering, one of the main differentiating factors of the industry.
Other risks that could lead to a deviation between forecast and reality are: a possible failure of the business strategies adopted and the possibility that the transaction will not close or will close but later than expected, which is largely dependent on the ability to obtain the required regulatory approvals and meet other conditions. The latter factor could also lead to a significant increase in transaction costs. In addition, Square's ability to retain TIDAL's artists and customers, as well as its ability to realise synergies, must be ascertained.
Finally, a further critical issue is the company's ability to execute a new business vertical and integrate TIDAL's products.