Why LiveOne Called Off Slacker’s SPAC Merger: ‘It’s a Tough Market to Come Out In’

Slacker, the music streaming service owned by LiveOne, called off its planned merger with Roth CH Acquisition V Co., a special purpose acquisition company, the companies announced Monday (Oct. 30). 

LiveOne CEO Robert Ellin attributed the move to a poor market climate for small companies. “Market conditions for micro-cap stocks, for stocks under $1 billion, are just decimated this year as a whole,” he says. Companies that go public through SPAC mergers also face a difficult time, he adds. A SPAC is a blank-check company created and funded for taking a private company public. SPAC funding and mergers peaked in 2021, according to SPAC Research.

The SPAC market has softened considerably since 2021. Many SPACs failed to close a deal and returned their funds to shareholders. Music Acquisition Corp. returned funds to shareholders in Dec. 2022. Liberty Media closed down its SPAC in Nov. 2022 after a fruitless search for a takeover target. A record 123 SPACs liquidated in the first half of 2023, compared to just seven in the prior-year period, and the average redemption rate — SPAC shares redeemed for full value before merging with a target company — increased in the first half of 2023, according to Kroll. “It’s a tough market to come out in,” says Ellin.

Additionally, LiveOne believes Slacker has gained in value since it agreed to merge with Roth. LiveOne previously announced it had signed a letter of intent to merge Slacker with Roth and put a pre-money valuation of $160 million on the music streamer. But on Monday, LiveOne raised its revenue guidance for Slacker to the range of $63 million to $66 million for the fiscal year ended March 31, 2024. The company expects adjusted earnings before interest, taxes, depreciation and amortization of $17 million to $19 million. 

“I think it’s worth $200 million at a minimum,” says Ellin, “and probably way higher than that when you’re looking at what Tidal sold for at $400 million and change, where Deezer trades at 300 million [euros, or $317 million]. We’re the only one that’s profitable. We make money every month, every quarter, every year.”

The market currently puts a far lower value on Slacker, however. LiveOne — including Slacker — has a $92 million market capitalization. That includes an 81% stake in PodcastOne, a podcast company LiveOne spun off in September that currently has a market capitalization of $70 million. LiveOne said that prior to the spin-off, PodcastOne was valued at between $230 million and $274 million by third-party valuation firm ValueScope.

Slacker was founded in 2007 and acquired by LiveOne — then called LiveXLive Media — in 2017 for $50 million. Many of its subscribers come from a white-label service that powers other brands’ digital radio. For example, nearly every new Tesla automobile sold in the United States comes with a subscription to Tesla Radio that’s provided by Slacker and paid for by the automaker. LiveOne says it added over 300,000 new paid Tesla subscribers in the first five months of its fiscal year, a 30% year-over-year increase. The company expects to add over 800,000 new subscribers this fiscal year.

With the SPAC merger off the table, Ellin sees numerous potential avenues for Slacker. “There’s an opportunity today to roll up multiple other companies in the space,” he said during an investor call on Wednesday (Nov. 1). “We have four to five potential acquisitions in the audio business alone that would fit in very nicely with the company and be extraordinarily accretive to revenues and bottom line. We also could explore a sale or a strategic investor, including some of our current customers or investors. We also will explore a direct IPO as the markets change and fair market value for the numbers that we’ve delivered are available.”

Roth “is currently exploring opportunities with other potential merger candidates in order to complete its business combination,” according to Monday’s press release.