TPG Eyes $500m Deal To Tune Into Spotify

One of the world's biggest investment firms is in talks to back a fundraising being prepared by Spotify, the digital music platform which has amassed almost 30m paying subscribers.

Sky News has learnt that TPG Capital is discussing an investment that would be worth several hundred million pounds to the Swedish-based rival to Apple (LSE: 0R2V.L - news) , Pandora (LSE: 0NQC.L - news) and other music-streaming services.

If TPG goes ahead with the deal, its money would be invested in convertible loan notes, an instrument which eventually converts from debt to equity.

Debt market sources said that TPG (Taiwan OTC: 6521.TWO - news) could invest as much as $500m in the loan notes, and that Spotify could increase the overall size of its offering to as much as $1bn.

The money could be used to fund acquisitions in a sector which is expected to consolidate, with the New York Post reporting this week that Samsung, Spotify and Google had all examined a takeover of Tidal, the streaming service founded by Jay Z.

TPG is one of the world's biggest private equity firms and has invested in companies including Debenhams (Other OTC: DBHSF - news) , Prezzo and Kensington, the sub-prime mortgage lender.

The latest financing engineered by Spotify comes amid continuing growth in the music-streaming sector, and follows a share sale last year which valued the company at about $8.5bn.

Among the investors which participated in the earlier deal were Lansdowne Partners, the London-based hedge fund, a division of Goldman Sachs (NYSE: GS-PB - news) and Technology Crossover Ventures (TCV), which first invested in Spotify in 2013.

TPG's potential backing for the company would add another blue-chip name to the list of investors which have a financial exposure to Spotify.

One of Sweden's leading newspapers reported last month that the loan notes would pay annual interest of 4% and would convert into equity at a 17.5% discount to Spotify's share price if it begins trading on a public exchange in the next year.

That discount would get bigger after each six-month period that Spotify remains privately owned, the Svenska Dagbladet reported.

Despite its success at growing its subscriber base, Spotify has continued to lose money, with soaring losses of €162m in 2014 even as revenues also rapidly increased.

Spotify has launched a string of new services and joint ventures as it seeks to broaden its consumer appeal and revenue base.

In 2013, it unveiled Spotify Connect, which links mobile devices to home audio equipment, and it has rapidly expanded its international presence, launching in Brazil and Canada last year, to take the number of markets in which it has a presence to 58.

The Coca-Cola Company (Xetra: 850663 - news) became a minor shareholder in Spotify in 2013, underlining the growing trend for major consumer brands to acquire shareholdings in digital ventures.

The rapid expansion of Spotify, which offers users on-demand access to tens of millions of songs for set monthly fees, has sparked tensions with some artists over royalty payments.

TPG declined to comment on Friday.