Updated from 1:36 p.m. EST with comments from SoundCloud.
Music streaming company Spotify has abandoned its plans to acquire competing music streamer SoundCloud, sources told TechCrunch.
Rumors of a deal between the two companies began to swirl in September, when the Financial Timessaid that the pair was in "advanced talks." This week, however, sources told TechCrunch that London-based Spotify walked away from the table due to potential complications surrounding the company's widely-speculated upcoming IPO.
The sources said at this moment, Spotify feels that it "doesn't need an additional licensing headache in a potential IPO." If Spotify explored a deal, the company would need to battle with music labels over SoundCloud's indie-focused track catalogue, incurring additional costs.
This isn't the first time that Spotify has stood up SoundCloud. The company previously approached SoundCloud two times over the past two years for deals, but turned away due to pricing issues, the Financial Times reports.
A SoundCloud spokeswoman said that the company does not comment on speculation and rumors, while a Spotify representative was not immediately available for comment.
Kathleen Smith, chairman of Renaissance Capital, a manager of IPO-focused ETFs, said that she "isn't surprised Spotify is being careful about what it does" moving into an IPO.
"Spotify will have to look carefully at its business model to make sure it has something investors would want," she noted. "It will have to show that it has profitability, and SoundCloud would have to add to that."
Smith suggested that Spotify may have been initially eyeing the Berlin-based company in an effort to boost its customer base. "Maybe it's too tricky to try to grow your user base while staying profitable," she said.
Spotify surpassed 100 million free and paying users this summer. CEO Daniel Ek said in September that the company has 40 million paid subscribers on the site, up from 30 million in March.
Despite a growing customer base, Spotify is competing against fierce rivals in the music space. Apple(AAPL) - Get Report has its Apple Music service, Amazon(AMZN) - Get Report launched Amazon Music Unlimited in October and Alphabet(GOOGL) - Get Report is in the ring with its Google Play Music service.
Smith noted that Spotify faces particularly tough comps from music streamer Pandora (P) . Pandora went public in June 2011, and following the first day of trading the company had a market cap of $2.6 billion.
Pandora now has a $3.2 billion market cap and is reportedly looking for a buyer. The company has set its sights on internet radio company SiriusXM(SIRI) - Get Report , which is controlled by Liberty Media (LMCA) , as a suitor.
Still, Smith doesn't think that abandoning a SoundCloud deal will hurt Spotify's chances of filing for a public offering.
"2017 should be a big year for IPOs," Smith said. "Many companies with reasonable valuation will try to go public. And Spotify should be able to go public. The only question will be what its valuation is."
The company was valued at about $8.5 billion in 2015.
And in March 2016, Spotify raised $1 billion in convertible debt from private equity firm TPG, hedge fund Dragoneer Investment Group and clients from Goldman Sachs.
The terms of this deal involved multiple caveats tied to an imminent IPO. If Spotify goes public in the next year, TPG and Dragoneer would be able to convert their debt into equity at a 20% discount to the IPO per-share price. But that percent will go up by 2.5% every six months after that first year, giving Spotify monetary incentive to go public in 2017.
If it goes public, it won't be taking SoundCloud with it.