Ministry of Sound is the music empire of James Palumbo, son of former Arts Council boss, Lord Palumbo. Founded in 1991, in a run-down warehouse in London’s Elephant & Castle, the night club has evolved to become a multimillion pound music media business. While the name is probably most frequently associated with the club itself, the group’s interests span from record production to magazines and more recently to larger scale events such as music festivals. To celebrate the millennium, Ministry of Sound organised a New Year’s Eve party on December 31, 2000 at the Millennium Dome, which welcomed 18,000 people. Last month, it entered the world of the summer dance festival when it held the first Ministry of Sound festival weekend, entertaining a massive 55,000 people at Knebworth, where the headliner was Jamiroquai with its first live performance for three years.
The club culture is a lucrative industry and over the years has evolved from an underground movement to a mainstream activity, influencing the music preferences, style and attitudes of young people. Ministry of Sound with its distinctive logo and custom-built sound system has built a business that is at the pulse of this culture.
Through its media division, 3i has acquired a significant minority stake in the group to help enable the growth of its media and music activities both in the UK and internationally.
3i has committed GBP24 million for approximately 20 per cent of the company’s equity. Investing on behalf of 3i were investment managers, Dan Adler and Michael Hodgson. The new management team for the company comprises figures from the forefront of the media industry. David Campbell, former chief executive officer of Ginger Media, and Chris Stephenson, previously marketing director of House of Blues, have both joined the business.
Media specialist corporate finance house, Longacre advised Ministry of Sound on the investment. Joint chief executive officer of Longacre, Jonathan Goodwin is no stranger to the 3i media team, having worked with it on the GBP6 million investment in Elizabeth Murdoch’s television and film company Shine Entertainment prior to bagging the Ministry of Sound deal. “The Ministry deal came along on the night we were closing the Shine deal,” said Goodwin. Adler says 3i’s relationship with Longacre has been invaluable for tapping into deal opportunities and Ministry of Sound is a classic example of this collaboration.
Over two and a half million clubbers have visited Ministry of Sound’s night spots that is renowned for its high quality sound systems and internationally-celebrated DJs. The growth of the music division has transformed it into a powerful global business with offices in London, Berlin, Sydney and New York and it is now the largest independent record label in the UK, with sales to date of over 15 million albums. The brand has enjoyed regular chart success with an average of 40 top 40 hits a year and the Ministry’s dance compilation albums make up around 10 per cent of the dance compilation market. The Chillout Sessions 1 and 2, both reached number one in the album charts, while chart toppers in the singles market have included Do You Really Like It, by DJ Pied Piper and Another Chance by Roger Sanchez. So Solid Crew’s 21 Seconds to Go is the Ministry’s most recent chart success, which reached number one last month.
Talking about the deal, Dan Adler of 3i’s media team, said: “This is another example of our commitment to the media industry. This year, we have invested in Pinewood-Shepperton studios and Shine Entertainment, amongst others. We had obviously heard a lot about the Ministry and James [Palumbo] has had a lot of good press. We were impressed by how successful the brand had become and by how fast it had grown.” What is valuable about the brand is that it has a staggering hit rate, says Adler. He describes the company as a hotbed for up and coming music talent. “Ministry has a phenomenal skill in helping new acts hit the big time. The more successful it became, the more people wanted to be associated with it,” he said.
The success of Ministry of Sound as a youth brand is something that is hard to come across in media investments, especially a high quality brand that also has a high quality management team. “When making an investment you have to be totally comfortable and confident that you are backing an A1 team with James we found the perfect deal. James is the sort of person VC’s make money out of.”
According to the Rich List 2001, a report compiled by The Sunday Times, Palumbo, with a fortune of GBP150 million is one of the richest entrepreneurs in the music industry. Palumbo said of the team working on the deal: “Success is all about people. 3i is fast and fair, LongAcre is the best new corporate advisory kid on the block and Ministry of Sound’s management team is world class. With 3i’s support and LongAcre’s thrust, we are now poised to spread the dance gospel worldwide.”
3i aims to be a supportive shareholder and this applies to additional funding rounds. The idea is to develop Ministry of Sound into a globally recognised media brand. “We want James to feel that the group can leverage as much out of 3i as needed,” says Adler. But he stresses that his team will not interfere with running process of the already well-established business. “We are offering support and not advice,” he says. “We are not suddenly going to start suggesting what will become a number one hit. That is not what this investment is about.”
Ministry of Sound’s nightclub is only a small part of the business, accounting for around three per cent of its activity.
He says: “We are looking at it as a growing media business over 80 per cent of its revenue comes from music and other related activities.” Ministry of Sound has an annual turnover of around GBP100 million, which is mainly generated from its CDs, magazines and clothing.
Every year, the touring division hosts an average of 300 events worldwide with annual club tours of Australia, Europe, America and the UK. Ministry of Sound was the first club to take dance music to China and the group will be touring India for the first time this autumn. The club also has residencies in clubbing capitals, Ibiza, Ayia Napa and Benidorm throughout the summer.
The media department has forged a powerful position for the brand in the lifestyle sector. Ministry of Sound magazine has a readership of 300,000, the website receives four million page impressions a month and has half a million users, while the Ministry of Sound radio show is syndicated to 38 different countries worldwide. The digital Ministry of Sound station can be accessed in London and Central Scotland or via the website.
Both Adler and Goodwin are convinced that you can’t go wrong with this deal. Indeed, competition was fierce when making negotiations and they had to fight for the stake in the company, says Goodwin. Adler said the deal process was carried out in an extremely professional manner with any transaction risks/on-going investment risks dealt with at the onset. The team also kept rigidly to the timetable.
“Dance music is aspirational, escapist and catchy. The key to Ministry’s success is that music is such a universal language,” says Goodwin.
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