Maglan Capital’s Chief Investment Officer Steven Azarbad President David Tawil are riding high with their distressed investing strategy, up nearly 15 percent year to date, and they reveal one secret to success: “When blood is in the streets, we’re all vultures.”
Maglan: High defaults turns distressed-focused investor into a fixed-income bargain-hunter
Writing in their July investment letter, Maglan notes that when defaults are high “any remotely distressed-focused investor (and even many high-yield investors and general event-driven investors) turns into a fixed-income bargain-hunter, picking up distressed debt at a discount,” the letter said, noting the expectation of rich profits in such a positive environment for the strategy.
Once the market environment changes, however, so too do the opportunities. The distressed-focused purest might choose to focus on distressed debt despite scant as the opportunities. Some shift focus to middle-market distressed situations, of which there is always inventory, the report notes, “because unlike the boom and bust in large-caps which is largely driven by the debt maturity schedule, middle-market businesses fail for a larger range of reasons.”
Others distressed focused investors stay true their debt focus and simply shift their battlefield to to Europe and Asia, and somehow bridge the gaps of sometimes radically different financial reporting standards, law and process, and culture. “Those investors who can be more flexible with regard to asset class or strategy may turn to activist investing, direct lending or just generally deep-value investing through equity,” the report notes.
Maglan taking advantage of busted IPOs
Maglan likes to focus on turnaround and post-reorganization equities, and regulatory/legal plays. “Today, instead of focusing on busted LBOs, we are taking advantage of busted IPOs in some instances,” the letter said. “With that focus, we choose to be on the winning side of fundamentals like supply-demand, liquidity and the US financial reporting and legal systems.”
With this as a backdrop the company focused on its latest investment thesis, SFX Entertainment Inc (NASDAQ:SFXE).
“Ever since our successful investment in MGM Studios, we have been on the lookout for a similar media/entertainment investment, which is misunderstood and out of favor with investors, is at the nadir of its earnings potential, and offers explosive earnings growth because of a unique and sharp management team strategy,” the letter states. “We’ve found that combination in SFX Entertainment.”
Maglan has solved the revenue for the music industry
With this play in SFX Entertainment Inc (NASDAQ:SFXE), Maglan is not only picking out a firm that they think has solved the revenue for the music industry by focusing on live events and social platforms, but they also are making a statement on the type of music they think will be successful.
SFX is the largest producer of live events and the largest provider of content in Electronic Dance Music (EDM), a fragmented category, the report notes. SFX is in the process of creating a global platform for recurring, high-margin live events, combined with an even higher margin social, online platform, which together can be offered to major global sponsors/advertisers seeking to reach the most elusive and most lucrative demographic – millenials, the report notes.
Interesting that a music industry source is now looking to monetize their audience demographics through advertising and sponsorships as a revenue generation supplement to traditional record sales.
Maglan has a price target of $15 on the stock and invested after a busted IPO. In the Fall of 2013, less than 2 years after the company’s founding, the company initially listed its shares at $13, but they had “little good news to share out of the gate. The company had no notable sponsorship relationships. And, the proceeds of the IPO were earmarked for acquisitions relating to its strategy to consolidate a fragmented industry.”
Today SFX Entertainment Inc (NASDAQ:SFXE) has completed numerous acquisitions in an attempt to roll up the EDM industry and has several well known sponsors, including Corona, T-Mobile US Inc (NYSE:TMUS) and Clear Channel Outdoor Holdings, Inc. (NYSE:CCO). It will be interesting to watch if Maglan can build on its already strong start to 2014 by identifying a music industry innovator.