CD Baby Acquisition for $22m Was Way Too Cheap
A couple of months ago CD Baby, one of the largest online sellers of music for indie bands, was acquired by Disc Makers. At that time the price was not disclosed, but now the founder Derek Sivers has disclosed to VentureVoice that the sale price was $22 million. Sivers owned 100 percent of the company he founded in 1998.
A lot of people are talking about a good winfall for Sivers, but Im really too sure what numbers they are looking at. Cd Baby published a report stating their sales from January to July 07, which made up of $21m in revenues, thus by the end of the year Im sure they would have around $50m in revenues. From what I have seen of web based enterprise acquisitions lately, they are normally around 5x revenues, thus placing Cd Baby around the $250m mark. Therefore selling at $22m is just a crazy cheap price and not a winfall!
2 Comments
Revenue is moot. Profit matters.
CD Baby was (is?) making about $4-5M/year net profit after all expenses, so Disc Makers paid 6x net, which is a very standard amount. I got the next 6 years’ profits up-front and they gamble it’s going to earn more than that, long-term. Paying $250M would have been like 60 years of profits!