MakeMusic Inc. said Wednesday it will be acquired by its largest investor for $23.8 million.
The Eden Prairie-based maker of music software accepted an offer by venture capital firm LaunchEquity Partners, which owns 28 percent of the company, for $4.85 per share, ending a long strategic review begun last summer.
The price is a 31 percent premium over MakeMusic’s Tuesday closing price of $3.70 per share.
Last July, one month after then-CEO Karen van Lith resigned, LaunchEquity, based in Arizona, offered to purchase MakeMusic for $13.5 million. LaunchEquity said MakeMusic isn’t making enough money, needs aggressive strategic leadership and had stifled its ability to attract new institutional shareholders by adopting a “poison pill” provision earlier this year. MakeMusic also faces significant competition from Hal Leonard Corp., a major printed-music publisher entering the digital music software market.
In a phone interview, MakeMusic Chairman Robert Morrison denied there was tension between LaunchEquity and the company, instead describing the relationship as “thoughtful and amicable.”
The relatively long strategic review “allowed us to really look at what opportunities we could offer our shareholders beyond LaunchEquity’s offer,” Morrison said. “It became apparent that the improved offer” was the best option.
Morrison said he has not yet discussed his future, nor the future management structure, with LaunchEquity.
It is uncommon for a venture capital firm to pursue an acquisition of publicly traded company. Venture capitalists usually invest in start-ups and later cash out their equity through an acquisition or initial public offering.
MakeMusic, which makes the widely used Finale family of software products, went public in 1995 and traded as high as $10 a share in 2006.
The company said that it lost nearly $5 million last year, compared with a profit of $139,000 in 2011. Morrison attributed the loss partly to planned investments in MakeMusic’s technology. MakeMusic also reported a large jump in operating expenses. One reason was the hiring of lawyers and investment bankers to review LaunchEquity’s offer. The company also had legal and severance costs associated with van Lith’s departure.
Under terms of the deal, any shareholder who doesn’t initially accept LaunchEquity’s $4.85 per share offer will receive the right to swap their shares for that price at a later date. Such a “back-end merger” precludes the need for shareholders to approve the deal. Morrison declined to say why that strategy was used.