MakeMusic Receives $13.5M Buyout Offer

Private equity firm LaunchEquity Partners said that if its offer were accepted, it would invest $10 million in MakeMusic over the next two years and retain all of the company’s employees.

Music software company MakeMusic, Inc., said Monday that its largest shareholder, LaunchEquity Partners, LLC, has offered to buy the operating assets of the company for $13.5 million.

LaunchEquity—which has been a MakeMusic investor since 2006—would also assume all of the Eden Prairie-based company’s liabilities. Scottsdale, Arizona-based LaunchEquity and its affiliates together own roughly 27.7 percent of MakeMusic’s stock.

MakeMusic said that it has appointed a special committee of independent directors to consider the proposal.

Under the terms of the buyout proposal, the $13.5 million from LaunchEquity, along with any cash MakeMusic has at the time it is bought out, would be distributed among its shareholders. According to LaunchEquity, the deal would provide shareholders with approximately $4.30 per share, which would represent a 20 percent premium over Friday’s stock closing price.

LaunchEquity said that if its buyout offer were accepted, the private equity firm would spend at least $10 million over the next two years to recruit and retain a new CEO, upgrade the company’s two main music software lines, and cover working capital and seasonal liquidity needs. It also said that it intends to retain all MakeMusic employees.

MakeMusic is the developer of music notation software Finale and interactive music learning software SmartMusic—which is used by more than 10,000 schools, colleges, and university music programs in North America.

But the company has suffered in recent years. Last year, it reported net income of $4,000 on revenue of $16.9 million—down from 2010 when its net income was $1 million and its revenue totaled $17.1 million. In May, the company reported an $840,000 net loss for its first quarter that ended in March—significantly greater than the $180,000 net loss for the same period the prior year. First-quarter net revenue, meanwhile, totaled $4.2 million, up from roughly $4 million a year earlier.

In June, President and CEO Karen van Lith abruptly left the company. Chief Operating Officer and Chief Financial Officer Karen VanDerBosch has since assumed the CEO duties on an interim basis.

In a July 15 letter to MakeMusic’s board of directors, LaunchEquity said that the music software company’s “lack of material revenue and profit growth, the steep decline in the company’s notation product line, the recurring turnover of senior leadership, and the accelerating level of spending during the six years that LaunchEquity has been a shareholder” led it to conclude that the company is in need of “aggressive strategic leadership.”

“We cannot simply sit idly any longer,” LaunchEquity wrote in its letter.

It also pointed out that in February, MakeMusic adopted a shareholder rights plan, also known as a “poison pill,” which would essentially dilute the stock of an investor that acquires 4.9 percent or more of the company’s shares. LaunchEquity said in its letter that the provision has stagnated MakeMusic stock’s trading, “essentially turning the company into a semi-private entity without the opportunity to attract any significant, new, institutional shareholders.”

Poison pills are typically measures that corporations take to discourage hostile takeovers.

Shares of MakeMusic’s stock were trading up 13.6 percent at $4.08 late Monday afternoon following the announcement about the buyout offer.

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