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SoundCloud destined for a 2017 acquisition?

Posted on January 27, 2017 By

It’s no secret that music streaming website SoundCloud is hurtling towards a period of financial difficulty. Last March the company followed in the footsteps of the likes of Spotify and Apple Music with the launch of SoundCloud Go, a premium music service that costs users $9.99 per month. Although it has since seen an increase in users, SoundCloud Go did little to alleviate the $52 billion loss the company reported for 2015, meaning it is likely to run out of cash by the end of this year.

Speaking to Fast Company, SoundCloud CEO Alexander Ljung stated that although the future is uncertain, he is confident the premium service will help to attract a new round of funding from investors. However, it has been heavily speculated by financial analysts that an acquisition is by far the likeliest option.

As one of the largest music streaming platforms, with 175 million listeners, SoundCloud has never been short of admirers. In 2014, Twitter explored the possibility of buying the company, but the social network giant reportedly walked away from early discussions. Fast forward to September 2016 when news broke that Spotify was in talks to acquire SoundCloud for $1 billion. Again, this sale wasn’t meant to be, with Spotify backing off due to its preparations for an IPO in 2017.

Earlier this month, MusicBusiness Worldwide reported that Google’s parent company Alphabet is “really interested” in acquiring the company for $500 million, half the price SoundCloud was looking for. If successful, Google would be able to reinforce its position in the music streaming market, incorporating the unique characteristics of SoundCloud with its current offering of Google Play Music. A highly competitive market, music streaming is dominated by a few key players so the strategy of acquisition could be a smart move for Google.

Despite Google looking to offer much less than SoundCloud was looking for, there are other factors that could come into play in favour of an acquisition. Most notably is the stake that music labels Universal, Sony and Warner have in the company. With such financial concerns in 2017, an acquisition would allow these labels to cash-out of their investments and avoid further risks, each reportedly in line to receive a cut of around $45 million.

Although SoundCloud has not addressed the Google rumours directly, it did release a statement following the news commenting on “solid growth” in 2016 and that the company is on a “very positive path to achieving our aim of enabling all creators to be paid for their work, while also building a financially sustainable platform where our connected community of creators, listeners and curators can continue to thrive”.

Stay tuned to our blog for industry M&A analysis and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.

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