Linkfire, the Copenhagen-based smartlink platform widely used by artists, record companies and podcasters, has ended the year with a double announcement: it will rejig its senior management team and delist from the Stockholm-based Nasdaq First North Premier Growth Market in January. This means that the company will return to private ownership, with existing investors keeping their stake and a new shareholder agreement.
Lars Ettrup – co-founder and CEO of Linkfire – is stepping down as CEO and will take a “strategic advisory role” in the business, while Tobias Demuth - the company’s CFO since 2017 - will step down “by the end of February”, with Chairman Jesper Møller and board member Ole Larsen assisting the company’s “strong operational finance team”. Linkfire’s new CEO effective 1 Jan 2024 is Jeppe Faurfelt, the company’s co-founder and current Chief Commercial Officer.
Writing about the news on LinkedIn, Ettrup made it clear that it was a “no-drama decision”, saying “all stories have different chapters, and as Linkfire will soon be a profitable and private company again, my work in the CEO capacity is done”.
The dual announcement came after an Extraordinary General Meeting of shareholders held on 21 Dec 2023.
That EGM was first announced on 29 Nov 2023 and followed a previous statement on 17 Jul 2023 that the company’s board of directors intended to initiate the delisting, citing “a period of very limited liquidity in the trading of the company’s shares and a very weak share price development, which have made it difficult for the company to meaningfully perform on its objectives of being listed”.
Those objectives would generally include the ability to secure financing to grow the business or be able to make acquisitions of other businesses using the company’s stock rather than cash - both things that are only generally possible if the share price is strong. Limited liquidity significantly increases the risk around finance and acquisitions, as poor liquidity can make it hard for shareholders to sell their shares. A combination of the two can have a very negative impact on a company’s ability to grow.
The EGM had initially been due to be held at the end of August, but in early September the company said - without disclosing why - that it would now be held “later in the second half of 2023”. The delay may have been due to the renewal of various partnerships, or might have been to allow existing investors to assess their options before activating the EGM process.
On 22 Nov 2023 - a week before the EGM date was announced - the company said that it had concluded a new 30 month debt finance facility of approximately €5 million with annual interest of 17% from existing shareholder Meng Ru Kuok, “repayable in whole or in part in the interim in case of future equity or debt raises during the term of the loan”. Kuok is CEO and founder of music industry investment company Caldecott Music Group, which counts Bandlab and NME among its portfolio.
The move to take the company private makes a lot of sense. Following a “substantially oversubscribed” offering, the company started trading on the Stockholm's Nasdaq First North exchange on 28 Jun 2021 at SEK 11.20 per share - which valued the company at SEK 652 million or approximately €64 million (£55 million).
On 11 Jan 2022 - when the company’s share price was around SEK 6 - Linkfire announced that it had acquired competitor smartURL in an all-stock deal worth approximately SEK 10 million (roughly €923k / £800k).
Since then the share price has declined sharply, hovering around SEK 1 over the last quarter and trading at SEK 0.92 on 21 Dec 2023, the day of the EGM. This is just one twelfth of the price the company was listed at.
For many investors, that sharp decline in valuation made little sense - particularly as the company was growing revenues, increasing market share and had high profile partnerships across the industry.
Reporting more than 85,000 artist and label customers and over 2.1 billion “consumer connections” in 2022 - defined by the company as the “number of unique visitors on Linkfire’s smart links” - Linkfire is instantly recognisable to many people across the music business, not least because of a number of high profile partnerships with leading music companies. These include multi-year integrations with both Amazon and Apple, with a deep integration with Apple Music For Artists. Earlier this year it announced renewed deals with both Sony Music and Warner Music, and says that the “vast majority” of the top 100 Billboard artists use its platform.
The company announced that it had reached EBITDA break-even in Q3 2023 and that it hoped to reach cashflow break-even in 2024 - something it said would be helped in part by the €5 million finance facility agreed with Kuok. As of 28 Jun 2023, Kuok held 11,091,393 shares in Linkfire, representing a 9.65% stake in the company, making him the fourth largest shareholder.
Kuok’s stake in the company - combined with his underwriting of the company’s finances - will have given him a lot of influence over the company’s direction. In fact, the company’s total valuation was around the same as the finance facility extended by Kuok, meaning that he must have seen significant opportunities for the company to grow during the term of the loan, providing security for his investment.
This sentiment seems to have been reflected by other significant shareholders. The EGM motion to take the company private required at least two thirds of shareholders to agree, and the fact that the motion passed means that a very significant majority of Linkfire’s shareholders - most of them venture capitalists and investment managers - were strongly in favour.
Investors Egor Romanyuk (28.94%), Northcap Partners Aps (13.01%) and Rocket Group Aps (10.58%) hold a combined 52.53%. Add this to Kuok’s stake and a further 13.68% owned by investment funds ICS, CEC and Barreson, and this represents 75.68% of the company’s cap table - more than enough to meet the two thirds threshold for the motion to delist to go ahead.
One of those investors, Peter Balint, said “Linkfire should have never listed in the first place. It’s a great company operation in a niche it dominates, but it is a growth company with a small revenue base. This is the domain of VCs that understand that, lead the company throughout various stages and fund it in the process. I think most of the companies on First North have a similar path and a lot of value has been destroyed”.
Companies will normally voluntarily delist from an exchange if - as was clearly the case for Linkfire - the company seems undervalued by the market compared to its actual performance. A major contributing factor to Linkfire’s poorly performing share price seems to have been the choice to list the company on Stockholm’s Nasdaq First North exchange, rather than any underlying issues with the business.
Linkfire’s biggest investor, Dubai-based Egor Romanyuk, was blunt in his assessment, saying First North is “a retail investor driven exchange, nearly no funds or market markers participate. Being listed on this company simply brings zero value to the shareholders… It is, in fact, much harder to find funding being listed on First North. The issue is the valuation - any equity financing would just destroy value for everyone as [the company] trades at a valuation [that is] below last twelve months’ revenues. I’ve spoken to many industry partners and we found that it would be exponentially easier to raise an equity round being private at a valuation of 3-4x revenue, which is of course impossible being public”.
On that basis, and with revenues of DKK 38.97 million (€5.23 million) in the last nine months, and DKK 52.6 million (€7 million) for FY 2022, the company’s “true” value based on a 3-4x revenue multiple is possibly somewhere between €20 million to €30 million. And as a key silo of consumer interaction data for the music industry, Linkfire’s real value may be considerably higher.
The revisions to leadership and ownership structure combined with the company’s strong industry partnerships, as well as reduced regulatory costs after delisting, mean that the company looks strongly positioned to consolidate its place in the market and continue to grow towards profitability.
With OpEx for 2023 likely to hit €6.5 million (based on the three quarters reported so far), and interest on Kuok’s loan to the company running at 17% when money is drawn down (meaning potentially €1.75 million in interest payments if the money is drawn down quarterly and the loan runs for its full 30 month term), it seems highly probable that the company will seek to raise new money from investors - existing or new - soon after delisting.