Private Equity Calls Time

Michael Hedges April 27, 2011 Follow on Twitter

When a private equity firm invests in a company a clock, genetic certainly, starts ticking. Nobody hears it at first, the sound drowned out by plaudits and arriving cash. The volume increases gradually until nothing else can be heard.

Axa Private Equity invested in French national radio broadcaster Skyrock in March 2006, buying shares held by Morgan Grenfell Private Equity and Goldman Sachs and taking 70% equity. Skyrock founder Pierre Bellanger retained 30% equity and the CEO position. Axa Private Equity invests in dozens of companies every year. They also, at the appropriate moment, sell. That’s their business, deal flow. It ain’t personal.

The ticking reached a crescendo about a month ago, right on time. Private equity firms generally like exits at five years. In five years Skyrock’s revenue had increased only slightly, to €32.7 million in 2010 from €31 million in 2005. Dressing up the company for sale would require significant cost cutting.

As the majority shareholder Axa Private Equity voted the interest of its investors and relegated M. Bellanger to a largely honorific position (April 12), appointing Marc Laufer cost-cutter in chief. One figure conspicuously dropped in an Axa statement was M. Bellanger’s €610,000 salary. Horrified at the prospect of having his baby sliced and diced, not to forget his own deal, M. Bellanger locked himself in his Skyrock office and rallied the troops.

Skyrock took shape in 1986, founded by M. Bellanger, as a local Paris radio station. Gradually, stations throughout France were acquired and Skyrock became a national (Class D) radio channel. It has always targeted a young and urban audience. Today that means hip-hop and rap music, rather hard core. It competes with NRJ, more pop, and Fun Radio, more dance music. Skyrock DJs are notoriously liberal with sexual references. French teens love it. In the January-March 2011 Médiamétrie national audience survey Skyrock posted a 4.5% market share among persons 13 years and older with NRJ at 5.9% and Fun Radio at 4.3%. In the greater Paris region Skyrock leads the youth market channels. Ubiquitous Skyrock DJ Difool (David Massard) said if M. Bellanger left he would take the protest to the streets.

Whether inspiration, genius or luck, M. Bellanger jumped into new media launching Skyblog in 2002. Skyblog had 4 million users in 2006 and now has more than 33 million worldwide. Skyblog was rebranded as Skyrock.com in 2007, cementing the web portal to the radio channel. In 2008 web giant Yahoo! offered US$400 million (€250 million at the time) for Skyrock.com. M. Bellanger declined. Skyrock.com contributes about half the company’s revenue.

So with M. Bellanger locked in his office, M. Laufer locked out and Skyrock DJs tweeting for listeners to take to the barricades French politicians seized a unique opportunity. “The capitalists want to change the identity of Skyrock,” said Socialist Party politician and former Minister of Culture Jack Lang who took to the Skyrock airwaves (April 15). Others, including Rachida Dati, took to Twitter to express solidarity.

“I have to intervene and protest with vigilance on the plurality of expression on radio, the plurality of music and especially the contribution to the plurality of Skyrock radio,” said current Minister of Culture Frederic Mitterrand. The French government was not pleased at the idea of young people in the banlieue disrupting things. There is, of course, an election next year.

In the deep history of French radio broadcasting another listener demonstration comes to mind. It was 1984 and the music channels were young and barely legal. Only three years earlier Jean-Paul Baudecroux set up NRJ in his mother’s kitchen. They were all pirates until the law changed, supposedly August 1st 1984. The government changed its mind with every sort of excuse.

NRJ kept broadcasting as a pirate. Then, as police readied to shut down all those pirate stations, an announcement on NRJ: “Friends, incredible as it may sound, your radio NRJ may be seized ... See you all Saturday at 1400, the city hall.” At the appointed time 300,000 people gathered, appropriately, at la Place de la Bastille. Prime Minister Laurent Fabius capitulated. He also lost his job a year later.

After about three days of positioning by both sides a deal was struck for French bank Crédit Agricole to take a stake in Skyrock large enough to put Axa Private Equity into a minority position. M. Bellanger and Crédit Agricole formed a holding company, which directly or indirectly owns 60% of Skyrock. Axa Private Equity can hold or sell but cannot stir up the management. “This decision was taken in perfect agreement with Axa,” said a Crédit Agricole spokesperson, quoted by Easybourse.

With all the well-orchestrated attention, new investors are surfacing to help Axa Private Equity to the door. Mobile operator Orange (France Telecom) and the Fonds stratégique d'investissement (FSI), the government investment agency for “innovative and strategically important” companies, are considering, reported Le Tribune (April 26), taking the remaining Axa Private Equity shares, essentially buying into the web platform.

That tickling sound is now almost silent.

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