Apple acquires UK music app Shazam: Deal pleases early investors despite "unicorn" valuation miss

 
Lynsey Barber
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Shazam started before the smartphone age in early 2000s (Source: Getty)

Early investors in Shazam have welcomed its acquisition by Apple, despite it going for less than its supposed billion dollar "unicorn" valuation.

Apple confirmed it was buying the music discovery app saying it was a "natural fit" and that it has "exciting plans in store" for the nearly two-decade-old British startup.

The value of the deal was not disclosed by the tech giant but has been reported to be worth around the $400m mark.

Apple said in a statement confirming earlier reports of the acquisition:

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"We are thrilled that Shazam and its talented team will be joining Apple. Since the launch of the App Store, Shazam has consistently ranked as one of the most popular apps for iOS. Today, it's used by hundreds of millions of people around the world, across multiple platforms.

Apple Music and Shazam area a natural fit, sharing a passion for music discovery and delivering great music experiences to our users. We have exciting plans in store, and we look forward to combining with Shazam upon approval of today's agreement."

Nenad Marovac, founder and chief executive of DN Capital which first invested in Shazam in 2004, said the deal was a "logical conclusion to a longstanding and close association between the companies".

"It's a great result for a wonderful UK tech company and demonstrates the quality of the technology and team. They can do so much with Apple," he told City A.M..

Shazam had raised just over $140m from investors to date from a dozen investors and had been valued at more than $1bn, making it one of only a handful of so-called unicorn startups to come from the UK.

Simon Murdoch, who made an angel investment in Shazam in 2001, was on its board until 2005 and now runs Episode1 Ventures shot down speculation about its exit at a lower price. "A billion dollar tag is a vanity tag. It's still a great exit for the founders and investors," he told City A.M.

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Shazam faced two different problems, he said. "It was seven years too early in 2002 - it wasn't until the iPhone that it took off. And it's been hard to monetise.

The smartphone apps can recognise music within seconds and suggests users buy the song on iTunes or add them to a Spotify playlist. Brands can also use music in TV adverts to push viewers to content using the app. It brought in revenue of £40.3m in 2016 and made a pre-tax loss of £4m, the latest accounts filed by the company in September this year show.

Shazam originally worked by dialling 2580 in the days before smartphones, identifying the song in a 30 second call, hanging up, then texting the artist and name to users. Murdoch said its US founders chose to headquarter the startup in London due to the UK's more mature mobile market.

"The company is amazing, one where technology is indistinguishable from magic, if you think about it. Apple is in a better position to take advantage of it, so it [the deal] makes a huge amount of sense" he said.

The deal, Apple's biggest since acquiring Beats for $3bn in 2014, strengthens its music offering.

"We see Apple taking Shazam’s technology and incorporating it into Apple Music in a bid to improve its service and compete more aggressively with Spotify," said Edison Investment Research analyst Richard Windsor. “With a new alliance between Spotify and Tencent and the acquisition of Shazam by Apple, the big players are getting their ducks in a row to dominate the global music industry."

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