The booming value of old hits has caught the ear of one of the world’s largest private equity groups which is pumping $1bn into a new fund aimed at buying up music catalogues.
Blackstone will bankroll the vehicle which will be managed by Hipgnosis Song Management, the company run by the music mogul Merck Mercuriadis. The fund will acquire the rights to evergreen songs that have surged in value during the streaming age.
The New York-based group will also buy a stake, the size of which it would not disclose, in HSM it said on Tuesday. The music company runs the London-listed Hipgnosis Songs Fund which has been on a fast-paced buying spree, snapping up works by artists such as Blondie and Neil Young and spending more than $2bn in the process.
The launch of the separate Blackstone-backed fund — christened Hipgnosis Songs Capital — comes as private equity groups increasingly target music publishing deals.
Apollo last week said it was launching a new investment company, HarbourView, with $1bn to spend on music rights and KKR has teamed up with the music company BMG to establish a new fund while investing directly in songwriters to tap into future income streams.
KKR is in talks to acquire a $1bn song catalogue spanning hits from Lorde, the Weeknd and Major Lazer, according to a media report in Billboard magazine. The firm declined to comment.
Investors see music rights as a high-growth opportunity where old songs, like Fleetwood Mac’s “Dreams”, can generate large returns through streaming and social media platforms. Universal Music Group, which listed in Amsterdam last month and is now valued at around €45bn, soared on its trading debut attesting to interest in the sector.
“This new partnership with Blackstone will deliver financial strength to invest in proven songs as well as grow our song management team,” said Mercuriadis, who previously managed artists including Elton John and Beyoncé.
The structure of the deal — which follows five months of “intense” negotiations, according to Blackstone — will mean that Mercuriadis pitches potential acquisitions to both the new fund and his existing listed fund. “The bidding is mine,” he told the Financial Times.
Blackstone declined to say whether it is taking a majority or minority stake in HSM, or at what valuation it is buying in.
The direct investment in the song manager will enable it to expand its workforce and improve its ability to generate more sums from its catalogue.
Blackstone’s investment in the new vehicle will be in equity and debt, and will come from its tactical opportunities fund.
Qasim Abbas, a senior managing director in Blackstone’s tactical opportunities unit, said the private equity group saw “long-term, sustainable value” in music rights. “As an asset class it is still in the early stages of evolution,” he told the FT.
Analysts at JPMorgan said in a note that Blackstone’s financial heft could enable Hipgnosis to pursue bigger deals than those done under its own steam. “The possibility of co-investing . . . may mean the opportunity to in future acquire some higher value catalogues than might have been possible previously,” they wrote.
Shares in Hipgnosis Songs Fund are up about 18 per cent since it listed in 2018, and rose 4 per cent in the wake of the Blackstone announcement to their highest level for a year.
This year analysts at Stifel raised concerns about how Hipgnosis values the songs it has acquired. Numis also said Hipgnosis’s financials were difficult to assess, given the lack of information available. The fund has responded by increasing the level of detail it releases about its purchases.
The tie-up with Hipgnosis is not Blackstone’s first foray into music. It led a consortium which bought the Peppa Pig-maker Entertainment One’s music assets, including the influential hip hop label Death Row Records, from the toy company Hasbro in a $385m deal this year.
Additional reporting by Antoine Gara in New York
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2021-10-12 17:41:13Z
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