MBW Reacts is an ongoing sequence of remark items from the Music Business Worldwide group. They’re our analytical (and typically opinionated) reactions to main current leisure information tales.
“Music belongings are a success when rates of interest are low, however will traders change their tune because the Fed introduces hikes?”
It was a query requested by the Wall Avenue Journal in March 2022, and it was forward of its time.
The Fed ended up elevating rates of interest on no fewer than seven occasions in 2022. The music M&A market, inevitably, felt the ripple impact.
Debt clearly turned dearer, as query marks hovered over whether or not traders attracted by music money flows had entry to the ‘cost of capital’ required to be aggressive within the new market.
On the vendor facet, artists and songwriters needed to contemplate whether or not they’d settle for decrease multiples than they could have within the heady days of 2021.
By October final yr, following a summer time cooldown in big-money M&A offers, Grubman Shire Meiselas & Sacks associate, Joe Brenner, concluded: “I don’t suppose the present market is what it was.”
Summing up the panorama in a Billboard interview, Brenner added: “Multiples have contracted some, and I don’t suppose the urge for food is identical — which means the feeding frenzy for getting these belongings that existed final yr.”
Brenner was beforehand concerned in large nine-figure offers for catalogs from artists reminiscent of Bruce Springsteen, Sting, and David Bowie, all of which closed in late 2021 or Q1 2022.
And it was particularly offers above $50 million and into these nine-figure sums ($100m+) that appeared to decelerate in Q2 and Q3 final yr, following a 2021 M&A market that noticed more than USD $5 billion spent on music rights.
As Denise Colletta of Metropolis Nationwide Financial institution told Varietyin December final yr, when requested a few cooldown within the music rights M&A market: “As a substitute of the $400 million or the $200 million deal, there are a variety of $20 million and $50 million offers nonetheless occurring.”
One deal that undoubtedly wasn’t occurring, and whose failure summed up the late-2022 stoop in music M&A: Pink Floyd’s catalog sale.
Rumors rumbled for most of last summer that the legendary British band was seeking to promote their grasp rights and different rights (neighboring rights, title & likeness) in a GBP £400 million-plus deal. However, ultimately, nothing occurred.
Merck Mercuriadis, founding father of Hipgnosis Music Administration, successfully declared the Pink Floyd bidding course of over in a Q&A together with his traders in December, noting: “It’s no secret to anybody that the Pink Floyd [recorded music] catalog was on the market not too way back, and ultimately that catalog received’t commerce [at least, at the expected level].”
The previous 4 months, although, have introduced a noticeably extra thrilling local weather for music’s M&A market – because the actually huge cash begins shifting once more.
A sudden flurry of acquisitive exercise suggests confidence could also be swarming again in direction of the capitalization of music rights on Wall Avenue.
Exhibit A: Hipgnosis is spending huge once more
There’s maybe no higher barometer of final yr’s cooldown in nine-figure offers than an organization many have come to watch because the talisman for the fortunes of the trendy period’s catalog rights enterprise: Hipgnosis.
With this billion-dollar pot of capital to play with, HSM started final yr in a rush, saying the acquisition of two rights portfolios – linked toKenny Chesney and Leonard Cohen – in Q1 2022 alone.
In whole, Hipgnosis Music Administration introduced three main offers final yr utilizing Blackstone’s cash: the third, a $100+ million deal to purchase Justin Timberlake’s track rights, arrived in Might 2022.
Worryingly for the broader music M&A market, issues then went quiet at HSM. In reality, within the latter seven months of 2022, HSM did not announce a single acquisition – not to mention one within the nine-figure realm.
Trade speculators prompt to MBW behind the scenes that Hipgnosis was discovering market circumstances (significantly associated to ‘price of capital’ calculations) too robust to efficiently deploy its $1 billion of Blackstone funding.
That tide, although, now seems to be turning.
In January 2023, Hipgnosis Music Administration – utilizing these Blackstone funds – announced the acquisition of Justin Bieber’s track portfolio, in addition to the pop star’s earnings stream from his recorded music (owned by Common).
That deal, in response to sources, was valued at round $200 million. Considerably, it marked HSM’s first nine-figure deal since H1 2022.
After an arid second half of 2022, the Bieber deal appeared to open the floodgates for Merck Mercuriadis’s firm. Inside every week, HSM had additionally introduced the acquisition of a song catalog from British hitmakers TMS, an acquisition thought to sit down within the eight-figures.
And earlier this month, only a fortnight after its Bieber deal, HSM introduced its acquisition of the full song catalog of Tobias Jesso Jr. – who’d simply been topped Songwriter of The 12 months on the Grammys.
(MBW additionally believes that Hipgnosis has, with out making official bulletins, acquired different catalogs from acts reminiscent ofNile Rodgers and Nelly Furtado in current months.)
MBW can’t be 100% positive on the worth of the Jesso Jr deal, however sources near the non-public Hipgnosis fund inform us with certainty that HSM has now deployed roughly $700 million of Blackstone’s cash.
Contemplating that, after the closing of the Justin Bieber deal in January, that lifetime spend determine was at roughly $600 million, in response to our sources, it’s an inexpensive guess that HSM simply closed two offers cumulatively value within the area of $100 million… in two weeks.
One well-placed supply near the non-public Hipgnosis fund instructed us this week: “Hipgnosis isn’t stopping there. It’s very close to to a take care of a rock legend primarily based in Los Angeles – a number of a whole bunch of tens of millions of {dollars}, in all probability introduced in April. And there’s extra to return after that too.”
If these “a number of a whole bunch of tens of millions of {dollars}” in that “rock legend” deal high $300 million, it’s going to imply that HSM may have, by MBW’s calculations, exhausted the preliminary billion {dollars} of Blackstone’s non-public Hipgnosis fund.
There would seem like no lack of additional dedication from Blackstone; when Hipgnosis introduced its billion-dollar fund in late 2021, sources prompt that Blackstone was possible ready to deploy a number of billions extra within the years forward.
Exhibit B: The King Of Pop – and the remainder of the nine-figure set
In reality, 2023 is wanting so bullish, M&A-wise, that its greatest artist catalog acquisition might show to be the greatest of all time.
In the course of the news-blitz of Grammy Week 2023, Selection reported one thing of colossal significance: The Michael Jackson property is apparently “nearing” the sale of half of its pursuits within the King Of Pop’s music catalog.
The front-running suitor, stated the report, is Sony Music Group, which is teaming up with an as-yet-unknown monetary associate* to discover the acquisition of the rights, which embody the property’s pursuits in Jackson’s publishing and recorded-music revenues.
The mooted worth of the Michael Jackson deal? $800 million to $900 million.
(*Sony has kind doing this; it beforehand teamed with Todd Boehly’s Eldridge Industries to fund a $500 million+ acquisition of Bruce Springsteen’s mixed publishing and recorded music rights. Eldridge added funding to assist bankroll the publishing a part of the acquisition.)
The potential Jackson sale isn’t the one nine-figure pricetag bouncing round music’s M&A market within the wake of the $200 million Hipgnosis Bieber deal.
For one factor, Dr Dre has this yr reached a $200 million-plus deal, reported in January, to promote a bundle of music earnings streams and another catalog belongings to a mix of Universal Music Group and Shamrock Holdings.
As well as, Scooter Braun – recent from serving to promote Justin Bieber’s songs to Hipgnosis for $200 million – simply introduced the ≈$300 millionacquisition of hip-hop label Quality Control by home-of-BTS, HYBE.
(Braun, pictured inset, is CEO of HYBE America, following the $1 billion acquisition of his Ithaca Holdings by HYBE in 2021.)
And with regards to ‘main’ music firms at present burning via acquisition capital – spanning each catalog acquisitions and company mergers – HYBE is unquestionably one to look at.
Including to its Quality Control acquisition, the Korean agency additionally recently splashed round USD $330 million on a 14.8% stake in its Okay-Pop rival, SM Leisure.
Based on an investor observe despatched to shareholders, HYBE now needs to up its spend to ≈$900 million as a way to safe a 40% stake in SM Leisure… much to the annoyance of SM’s present administration group.
Exhibit C: Primary Wave, and its $1bn+ freedom funds
Amongst the doom and gloom of the “catalog slowdown” naysayers in 2022, one occasion actually caught out as operating counter to the narrative.
Main Waveannounced in October a brand new $2 billion take care of Brookfield Capital.
As MBW defined on the time, as soon as varied inside fiscal to-ing and fro-ing had been accounted for, this settlement left Main Wave with north of $1 billion in unspent, further capital to play with within the market.
Larry Mestel, CEO and founding father of Main Wave, told us at the time that his firm had $600 million in agreed-but-not-yet-closed offers out available in the market, having already spent $300 million within the first three quarters of 2022.
“We’ve truly by no means been busier,” stated Mestel of Main Wave’s M&A exercise, considerably flying within the face of the Fed-related doom and gloom. “We’ve an infinite quantity of deal movement within the pipeline.”
4 months on, we now have a greater thought what Main Wave’s deal movement at the moment appeared like.
It included now-announced acquisitions together with offers with: Whitney Houston songwriters, Shannon Rubicam and George Merrill, believed to be value between $50 million and $100 million; rock band Huey Lewis and the News ($20 million); and Joey Ramone of the Ramones ($10 million).
Extra lately, there was Main Wave’s “monumental acquisition” – introduced in January – of a catalog containing rights created by Robby Krieger and the late Ray Manzarek of legendary US rock band, The Doorways.
Trade rumor-mongers say this was a ≈$70 million acquisition, including extra proof to the concept 2023 is already seeing extra large-scale ($50m+) catalog buyouts than we noticed in the entire of H2 2022.
(The sparse however notable exceptions to H2 2022’s big-money catalog offers slowdown included Concord‘s ≈$300 millionacquisition of a catalog related to Genesis.)
Credit score: QuiteSimplyStock/Shutterstock
Exhibit D: Different traders filling their cabinets with money
For an extra indication that 2023’s catalog acquisitions market is warming again up, you solely have to have a look at who’s elevating what.
Shamrock, who have been concerned within the aforementioned Dr Dre deal and have beforehand purchased artist/author catalogs masking the likes of Taylor Swift and Stargate, lately introduced a brand new fairness fund – partly focused at shopping for music rights – with greater than $600 million in commitments.
And over in Korea, Okay-pop and media big Kakao Leisurerecently secured an funding value round $1 billion from sovereign wealth funds, a part of which it plans to make use of to develop its music operation through acquisition. (Kakao, like HYBE, has this month announced that it’s acquired a minority stake in SM Leisure.)
In the meantime, the CEO of New York-based Reservoir, Golnar Khosrowshahi, confirmed on her firm’s quarterly earnings name earlier this month that: “Our pipeline is powerful at almost $2.3 billion in whole worth for potential offers.”
Reservoir, which has acquired catalogs created by the likes of Dion and Leroy Clampitt in current weeks, has usually acquired catalogs within the sub-$50 million vary – explaining why Khosrowshahi final yr stated the macro-cooldown in music M&A offers hadn’t hugely affected her firm.
Nonetheless, because it confirmed when it bought Tommy Boy Data for $100 million in 2021, Reservoir has the ambition and monetary firepower to enter the world of nine-figure offers when the time calls.
With Sony doubtlessly centered on the Michael Jackson deal, what may the opposite main music firms swoop for within the months forward?
This portfolio of belongings contains the soundtracks to a raft of basic films and TV reveals, from the Batman movies to Fame and Singin’ In The Rain.
Our sources inform us that highly effective music trade lawyer, Allen Grubman, is operating level on this sale, and discussions have already begun throughout Main Music Firm Land.
The vendor is doubtlessly searching for a 20-times a number of on NPS for the library, we’re instructed – which, if reached, would put its worth comfortably above USD $1 billion (aka: a ten-figure deal).
Whispers recommend that Anthem’s majority-owner, Ontario Academics, is now contemplating a piecemeal sale of the corporate’s belongings, which span verticals together with Movie & TV music, Manufacturing music, and Music Publishing.
Whether or not Anthem’s bought in bits, or in a single go, count on a number of nine-figure agreements to be reached in some unspecified time in the future sooner or later.
The conclusion of all of this exercise?
After the curiosity rate-driven ‘huge freeze’ of massive-money music rights acquisition tales, rhythm appears to be selecting again up on the market.
That rhythm will flip from a canter right into a gallop if that Michael Jackson sale is pulled off at wherever close to $900 million.
That might be round double the dimensions of the Bruce Springsteen rights sale to Sony in 2021 – at $500m-plus, at present the all-time greatest single-catalog music acquisition.Music Enterprise Worldwide
