Wall Street Now Wants KKR’s re-entry into the music business, which included a superb direct acquisition of OneRepublic’s Ryan Tedder’s copyrights, suggests a new wave of Wall Street interest in an area that financial behemoths mainly had ignored for years.
The music industry’s catalog purchase frenzy is still going strong. Larry Mestel’s Primary Wave and Merck Mercuriadis’s Hipgnosis Songs Fund, two investment and management firms, are currently the gorillas in this jungle: the latter has already acquired copyrights or income streams from Neil Young, Lindsey Buckingham of Fleetwood Mac, Shakira, and Jimmy Iovine in 2021 alone. To get more money for your investmentment you can visit OakParkFinancial here >>
The industry’s established “majors” have been caught off guard by these big-spending upstarts, who have purchased well-known catalogs assuming that they will profit handsomely from sync licensing and other income streams. In October of last year, Warner Work Group took on almost $250 million in debt to fund two purchases, one of which, I’m informed, included the portfolio of a major songwriter who would have otherwise sold their music elsewhere.
According to this piece, Universal Music Group dipped deep into its sofa cushions to buy Bob Dylan’s library for about $400 million at the end of last year, demonstrating that it could punch hard in the war for music rights.
Have companies like Hipgnosis pushed the market to its limit? Don’t put your money on it.
As Wall Street’s greatest names struggle to possess music assets, this week’s music industry activity signals that acquisition multiples are poised to soar even higher.
A true financial heavyweight entered the music M&A field on January 13th. Ryan Tedder, the OneRepublic frontman and songwriter for Adele, Beyonc, Stevie Wonder, and the Jonas Brothers, has sold majority ownership in a publishing catalog to Kohlberg Kravis Roberts (KKR), an investing juggernaut with over $230 billion in assets under control. According to Reuters, the catalog is worth $200 million.
This isn’t the first time that Wall Street behemoths have dabbled in the music industry’s inner workings. In 2016, BlackRock (which manages $7.8 trillion in assets) spearheaded a $300 million investment in Primary Wave, which was then used to purchase iconic music collections, including Bob Marley’s.
In other news, Blackstone’s Core Equity Partners fund bought US collection agency SESAC in 2017 for a reported $1 billion. In a transaction struck with a Morgan-side “friend” of Bhasker’s manager, Neil Jacobson, Morgan Stanley surreptitiously picked up producer royalties from Kanye West collaborator Jeff Bhasker for an estimated $60 million or more in 2019.
New copyright takover deals
The KKR entry, on the other hand, has a distinct vibe about it. This is a more linear takeover of copyrights than The Carlyle Group investing in Scooter Braun’s Ithaca Holdings or Providence Equity pouring money into Tempo Music Investment’s $650 million spending purse. It is a direct acquisition of a blockbuster rights catalog by a Wall Street thoroughbred for a nine-figure sum.
KKR will be in charge of purchasing and administering the songwriter’s publishing library in-house.
This is something we can expect to see more of in the future. When announcing the sale, Nat Zilkha, Chairman of KKR’s Gibson Brands, implied that the Tedder purchase would be the first of many in the music industry for KKR.
“At KKR, we’re focusing on a number of investment initiatives across the music and entertainment industries, and we believe Ryan’s unique combination of artistic brilliance and commercial acumen will help us amplify these efforts,” Zilkha stated (bolding mine).
How companies make huge profits by selling music catalogs
This is KKR’s second attempt at investing in the current music industry. KKR bought 51 percent of Bertelsmann’s music rights company, BMG, in 2009 and sold it for about $1 billion in 2016, giving Bertelsmann full ownership. Given that BMG had an annual operating profit of $155 million in 2019 and that Universal Music Group is now valued at 27 times its EBITA profit from the same year thanks to the sale of its Tencent interest it looks that KKR made a hasty judgment by selling BMG at the time it did.
It wasn’t the only one. In 2011, Citigroup, a US banking juggernaut, acquired “the fourth major music corporation,” EMI, when the music industry failed to keep up with its interest payments.
On the other hand, Citigroup sold EMI’s music publishing half EMI Music Publishing (EMP) to a consortium led by Sony in 2012 for $2.2 billion.
By November 2018, when Sony completed its acquisition of EMI Music Publishing from its co-investors, EMP had a $4.75 billion enterprise value. The value of the music company Citigroup sold in 2012 had more than doubled in less than half a decade, thanks to the growth of streaming.
With KKR re-entering the market, Wall Street is once again licking its lips in the direction of music. In recent years, Morgan Stanley, JPMorgan Chase, and Deutsche Bank, which have been particularly close to the Universal Music Group story, are likely to ramp up their participation in this market.
Watch out for Goldman Sachs, whose top analyst Lisa Yang’s music market and company estimates have helped the value of hit songs increase in recent years while also bolstering institutional investor trust in music copyrights.
Welcome to 2022, when the music library sell-off game is set to explode even more against the backdrop of canceled concerts and the struggling live music industry. The world’s financial powerhouses want a piece of the gold rush action.