Blackstone
A Blackstone-led group of investors is buying a majority stake in Citrin Cooperman, which owns one of music’s most important valuation firms. The Financial Times has reported that this deal gives the target an enterprise value of $2 billion. As part of the transaction, Blackstone is acquiring New Mountain Capital’s stake in the firm.
As the music industry’s catalog market grew red hot over the last decade, Citrin Cooperman has become a leading expert, helping buyers and sellers determine the value of musical IP. Its Music Economics and Valuation Services practice is co-led and founded by Nari Matsuura. It is also co-led by Barry Massarsky, who joined the firm after it acquired his own company, Massarsky Consulting, in 2022. The team’s many clients include power players like Hipgnosis Songs Fund, Primary Wave and Reservoir Media, and it has reportedly overseen roughly 750 catalog valuations worth more than $15.5 billion between 2021 and 2022 alone.
But the firm does far more than just music catalog valuations. Founded in 1979, Citrin Cooperman is a trusted advisor to more than 15,000 clients globally through various tax advisory and accounting services.
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In late 2023, Citrin Cooperman was involved in a controversy surrounding its client, Hipgnosis Songs Fund. At the time, Hipgnosis announced that it would cancel a planned quarterly dividend payment to shareholders, due to a decision it said was made by Citrin Cooperman to reduce its expectations of retroactive payments from the Copyright Royalty Board’s Phonorecords III ruling by more than 50%, which it called an “industry-wide” issue. Billboard spoke to other catalog owners at the time who disputed the claim that this was “industry-wide,” saying there had been no recent updates regarding Phono III and that it seemed like a situation unique to Hipgnosis and Citrin Cooperman.
Deutsche Bank Securities Inc. is serving as financial adviser to Blackstone in the transaction, while Kirkland & Ellis LLP and Gibson, Dunn & Crutcher LLP are serving as its legal advisers. Guggenheim Securities, LLC is serving as lead financial advisor to New Mountain and Citrin Cooperman, with Koltin Consulting Group serving as an additional financial adviser to both parties. Simpson Thacher & Bartlett LLP, Zukerman Gore Brandeis & Crossman, LLP, and Hunton Andrews Kurth LLP are serving as legal advisers to New Mountain and Citrin Cooperman.
Alan Badey, CEO of Citrin Cooperman, said of the deal, “We are excited to have reached an agreement for Blackstone to invest in Citrin Cooperman as we enter our next chapter of growth. Blackstone will help us make additional investments in expanded service offerings and technology as we deliver on our continued commitment to best-in-class firm culture and providing an exceptional client experience. We thank New Mountain for their years of partnership in helping to build and support our business.”
Eli Nagler, a senior managing director at Blackstone, and Kelly Wannop, a managing director at Blackstone, said, “The Citrin Cooperman partners and staff have done an exceptional job making the firm a leader through an unwavering commitment to excellence and client service. We are excited to invest in the business to help it continue to provide the highest quality offerings moving forward.”
Andre Moura and Nikhil Devulapalli, managing directors at New Mountain, added, “We are proud of our successful partnership with Citrin Cooperman, and we thank the management team, partners and staff of Citrin Cooperman for all we have accomplished together over the last three years. We look forward to seeing Citrin Cooperman continue to thrive for the benefit of all its clients and stakeholders.”
In the end, 2024 was the year that the U.S. performance rights societies found out what type of valuations they can command when they are put up on the block. As the year comes to a close, a select group of private equity suitors is kicking the tires on yet another performance rights organization, SESAC, according to sources.
Those sources say that deals like New Mountain Capital’s acquisition of BMI in February and Hellman & Friedman signing a letter of intent in September to replace Taxes Pacific Group as the majority owner of Global Music Rights that gave GMR a $3.3 billion valuation served as a catalyst for some private equity firms to reach out to SESAC’s corporate owner Blackstone to see if it was interested in selling.
Consequently, Blackstone is fielding inbound interest from a group of private equity firms that unsuccessfully bid on GMR, according to a source familiar with the matter.
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Many private equity firms look at GMR and are “all shocked by the final valuation,” says a music asset investor. “Those firms have a real appetite for music because music assets are doing well.” In fact, some sources suggest that SESAC has been a fantastic performer for Blackstone. Nevertheless, as an investment firm representing institutional clients, Blackstone has a fiduciary obligation to maximize returns on their investments. So with the aid of the Moelis & Co. and Morgan Stanley investment banks, Blackstone is selectively and informally shopping the PRO and its subsidiaries to a targeted group of private equity firms, while so far eschewing to reach out to potential strategic buyers, sources say. “You can’t blame Blackstone for testing to see what the market will pay for SESAC,” says one music asset buyer.
SESAC, Blackstone, Moelis and Morgan Stanley executives either declined to comment or didn’t respond to a request for comment.
Blackstone, which bought SESAC in 2017 for $1.125 billion, has since invested in the company as the PRO, led by chairman John Josephson, has been making subsequent add-on acquisitions to complement its core business. During Josephson’s tenure, SESAC has acquired the Harry Fox Agency and Audiam to go along with earlier acquisitions like RumbleFish and Christian Copyright Licensing International. What’s more, in 2021, when Blackstone bought Hasbro’s music assets, including the MNRK record label and the Audio Network production music house, the latter company was added to SESAC’s portfolio. (Sources say Audio Network is included in the SESAC assets being looked at, but Billboard could not determine if MNRK is also included in any potential deal.)
Along the way, Blackstone loaded up SESAC with about $1 billion in debt through a series of asset-backed bond offerings, with the latest securitization for $180 million happening earlier this year. On Feb. 8, Kroll Bond Rating Agency (KBRA) noted that the proceeds from that bond sale would be used for “distribution to equity investors” as well as to pay certain transaction expenses and make deposits into certain transaction accounts.
According to that credit rating report, SESAC had revenue of $388.6 million in 2024, presumably the fiscal year ended Jan. 31, 2024. It also said that the company is expected to hit over $400 million in its current fiscal year, likely the one that will end Jan. 31, 2025. What’s more, that $388.6 million revenue total tracks only the SESAC businesses that are part of the collateral for the February 2024 securitization offering, which included SESAC, Christian Copyrights and Audio Network. Revenue from the Harry Fox Agency (HFA), the Stephen Arnold Group (SAG) and a few other smaller entities are not included as collateral. With HFA and SGA consistently reaching a combined total of $20 million to $25 million, according to revenue numbers given in earlier SESAC bond rating documents — published by the likes of Morningstar and the Kroll Bond Rating Agency — for 2022 and 2019 SESAC bond offerings, it’s conceivable that SESAC’s revenue was already above $400 million by the end of its most recent fiscal year. Those assets are included in what’s being shopped, sources say.
A 2019 Morningstar analysis found that SESAC has had a 12.9% annual growth rate since 1994. While that report didn’t cite revenue from those earlier years, other SESAC-related documents obtained by Billboard through the years show that SESAC had grown from $9 million in revenue in 1994 to about $57 million by 2004, then to about $206 million by 2014 and about $275 million by 2018.
While it’s unclear what price will tempt Blackstone to sell, sources say that as recently as last year, Blackstone and SESAC executives were saying that the PRO and its subsidiary companies were carrying about a $2 billion to $2.5 billion valuation. However, that’s when its securitized net cash flow was $118 million on collections (revenue) of about $318 million, versus the latest financials, which put securitized net cash flow at $147 million on $388.6 million in revenue, according to the Kroll report. That represents increases of 24.6% in securitized net cash flow and nearly 22.2% in collections/revenue over the prior year. Besides that growth, the implied valuation of SESAC is further enhanced by the BMI and GMR deals, which shows that PROs are attractive to private equity, sources say.
Unlike BMI and ASCAP, SESAC and GMR are not stymied by consent decrees, which is also a positive as far as private equity is concerned. A further deal point is that SESAC has a diversified revenue base. According to the Kroll report, at the end of fiscal year 2024, SESAC derived 37.2% of its annual revenue from general licensing, 21.7% from digital, 18.9% from TV, 9.7% from Audio Network, 6.4% from radio, 0.7% from foreign affiliates and 5.5% from other efforts.
On the other hand, that percentage breakout shows that even with the company’s diversification efforts into related music industry functions, its core business remains SESAC’s performance rights licensing, which it does through a boutique strategy of inviting songwriters to join as members. Through this strategy, it has landed such clients as Bob Dylan, Adele and Neil Diamond.
Still yet another plus that suitors will find attractive, says a music industry source, is the savvy stewardship of SESAC under Josephson. “He is been very effective there,” that source adds.
Moreover, in order to improve profitability, SESAC has been quietly pruning songwriters who are not generating enough royalties from their catalog. According to Kroll, the number of songwriter and publisher affiliates (with the former presumably the preponderance of the total), has shrunk from 35,000 in 2019 to 15,000 last year.
Pricing is paramount in whether Blackstone will do a deal. But it will be weighted against the possible return on investment if it chooses to retain ownership of SESAC. As it is, Blackstone and its equity investors likely have already clawed back a good portion of their initial investment in SESAC. In addition to the aforementioned possible equity distribution from the February bond offering, during the eight years it has owned SESAC, it’s likely that Blackstone made earlier dividend payouts to investors from the PRO’s profits down through the years; and possibly from earlier bond offerings, too. Besides that, Blackstone has provided itself with an annual $30 million management fee as measured against 16% of SESAC’s core retained collections, whichever is greater. (While the rating agencies do not define core retained collections, that could be the equivalent of net publisher share — what’s left after making royalty payments to songwriters and publishers.)
As for possible suitors, so far the only private equity firm that has come up in more than one conversation with music industry sources is TA Associates, a Boston-based private equity firm that says it has raised $65 billion in capital. A perusal of the investment firm’s website reveals that it has invested in another music company: In 2022, it acquired TouchTunes, the digital jukebox network that supplies music to bars, clubs, restaurants and other social spaces in North America and Europe. Moreover, a source says that TA may have even looked at SESAC in the past; SESAC has come up for sale a few times over the years and consequently had a few other institutional investor owners in the past, including Rizvi Traverse; before that, Oct-Ziff Capital Management Group was a minority shareholder in the company.
TA Associates representatives couldn’t be reached for comment over the year-end holidays.
Moelis, which is one of the banks said to be shopping SESAC, has made its mark elsewhere in the music business in 2024. Earlier this year, it was the buy-side advisor to New Mountain Capital in its BMI acquisition and the sell-side advisor for GMR in its search for an investor to replace the Texas Pacific Group. Morgan Stanley has music industry experience, including investing with Kobalt in making music acquisitions, among other deals.
Additional reporting by Elizabeth Dilts Marshall.
Hipgnosis Songs Fund, one of the most influential players in the catalog acquisition market run-up of recent years, and Barry Manilow are embroiled in a pair of lawsuits over $1.5 million in unpaid bonuses Manilow’s team claims Hipgnosis agreed to when it acquired his catalog.
Hipgnosis Songs Fund sued first in the High Court in London on August 12, saying they do not owe Manilow these bonuses, and that Manilow, Manilow Productions and Stiletto Entertainment are in breach of contract for not turning over certain payments they received from Sony Music. The “Mandy” singer and his management company sued back in United States federal court in California on Aug. 28, claiming that Hipgnosis does owe Manilow $1.5 million in bonuses, and that the fund did not actively promote his work, thereby avoiding these performance-linked bonuses — logic Hipgnosis calls flawed.
In other circumstances, this may have been treated like a mundane contract dispute. But Manilow’s legal team allege in the suit that Hipgnosis, through its founder Merck Mercuriadis — the man behind the formerly London-listed fund’s famous appetite for acquisitions — falsely represented that it had the people and know-how to increase the money generated by Manilow’s master recordings. Mercuriadis is not party to either lawsuit, and through a spokesperson he declined to comment for this article.
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According to a copy of the contract included in Hipgnosis’ lawsuit, the company acquired 100% of Manilow’s worldwide income (excluding SoundExchange royalties) from his master recordings for $7.5 million. Two bonus payments were to be paid out if, for the first payment, the income Hipgnosis received from its share of the assets increased by at least 10% year-on-year compounding for each of the first three years; and if, for the second payment, the income Hipgnosis received increased by at least 10% year-on-year compounding for years one through four.
Manilow’s legal team says in its suit that Hipgnosis described promotional strategies that included album reissues, special compilations and synch deals, as well as less traditional strategies like a YouTube Karaoke channel, Instagram giphy packs and Copacabana-themed dance trends.
“Hipgnosis did not carry out a single one of its touted promotional strategies; upon information and belief, it did nothing at all in order to keep the cash income below the levels required to meet the condition precedent for the additional purchase price payments,” Manilow and Stiletto Entertainment’s legal team alleges in the complaint. Manilow also missed out on expected complementary increases in the value of his publishing royalties and his Las Vegas residency, they claim in the suit.
In its suit, Hipgnosis alleges that Manilow, Manilow Productions and Stiletto Entertainment breached their contract that laid out when bonuses would be paid because Manilow & co. received two royalty payments from Sony — for the period from July 1 to December 31, 2022, and January 1 to June 30, 2023 — that they ought to have turned over to Hipgnosis but didn’t. In addition, Hipgnosis says in the lawsuit that Sony Music suspended payment of royalties for the period from July 1 to December 31, 2023. Sony Music through a spokesperson declined to comment.
Regardless, Hipgnosis says in the suit it does not owe the bonuses because the income received never met the performance targets, and it is seeking to recover 100,000 pounds from Manilow and his production and management teams.
“The matter of the bonus payment is a routine contractual matter regarding interpretation of certain contract clauses,” a Hipgnosis spokesman said in an emailed statement. “While we regret that this couldn’t be resolved directly between the parties, the court is now best placed to offer a final and definitive opinion on this matter. We have full confidence in our position and the legal process.”
Representatives for Hipgnosis also dispute Manilow’s team’s logic that Hipgnosis did not promote his works so as to keep the income levels below the thresholds that would trigger the bonus payouts, saying that logic is false because acquisition deals are structured to incentivize Hipgnosis to optimize the asset. Performance bonuses by definition are paid out when the asset does well, which benefits the artist and Hipgnosis, they say.
“Hipgnosis’ model is based on a strong alignment of interest between songwriters and artists and our business,” Hipgnosis’ spokesperson said in the emailed statement. “We continue to hold Barry and his music in the highest possible regard. To suggest that Hipgnosis would deliberately withhold promotional efforts for these recordings would not make commercial sense. These claims are baseless, and we will defend them vigorously should that be necessary.”
Manilow’s case is currently a one-off. However, the board of Hipgnosis Songs Fund said that, as of Sept. 30, 2023, it was liable to pay out as much as $68.1 million in catalog bonus provisions across 10 catalogs, of which the disputed Manilow bonuses are just one. Hipgnosis Songs Fund has since been taken private by Blackstone and no longer discloses this level of financial data.
Blackstone has officially completed its $1.6-billion acquisition of Hipgnosis Songs Fund (HSF), bringing an end to the six-year-old, London-listed investment trust that amassed a catalog of 65,000 copyrights including songs by Red Hot Chili Peppers, Journey, Shakira and Neil Young.
Following a shareholder vote on July 8 and a court approval on Friday (July 26), the acquisition scheme was delivered to the Guernsey Register on Monday (July 29), according to a regulatory filing. As a result, all HSF shares are now owned by Blackstone and trading was suspended on Monday. HSF shares are expected to be removed from the London Stock Exchange on Tuesday morning (July 30).
With the acquisition effective, Robert Naylor, Cindy Rampersaud, Francis Keeling, Christopher Mills and Simon Holden resigned from the HSF board. Ben Katovsky, CEO of Hipgnosis Song Management (HSM), and Dan Pounder, HSM’s CFO, were appointed to the board.
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The deal allows Blackstone to consolidate its interests under the Hipgnosis umbrella. In 2021, Blackstone launched a $1 billion partnership with HSM to acquire and co-manage music catalogs. Under the deal, Blackstone took a stake in HSM, the investment advisor to HSF, and formed Hipgnosis Songs Capital (HSC). HSC acquired rights to the music of some notable stars, including Justin Timberlake and Kenny Chesney in 2022 and Justin Bieber in 2023.
Led by former artist manager Merck Mecuriadis, HSF went public on July 11, 2018, and raised 200 million pounds ($260 million) to begin canvassing the music business in search of high-profile catalogs. Through subsequent offerings in 2019, 2020 and 2021, HSF brought its total capital raised to nearly 1.3 billion pounds ($1.67 billion). In March 2020, HSF became a constituent of the FTSE 250, an index that holds the 101st to 350th largest companies on the London Stock Exchange.
As the music industry soared on the back of streaming growth, the publicly traded HSF ran into turmoil. By 2021, a deflated share price hampered HSF’s ability to raise additional capital to acquire more catalogs. Shareholders were frustrated by a series of missteps and voted against continuation in 2023, which prompted HSF’s board to conduct a strategic review that produced evidence of overstated revenue and earnings. Mercuriadis stepped down as CEO of HSM in February and resigned his position as chairman in July. Blackstone emerged as the highest bidder in April, beating out Concord, which had made a $1.4-billion offer earlier that month.
Six years after going public on the London Stock exchange, a majority of Hipgnosis Songs Fund shareholders voted on Monday (July 8) to sell the fund to Blackstone for $1.6 billion, according to a regulatory filing. According to the filing, 99.97% of shares voted voting in favor of selling to the private equity giant–59.21% of […]
Blackstone doesn’t intend to increase its latest offer to acquire Hipgnosis Songs Fund (HSF), the London-listed investment trust it first launched a takeover bid for on April 20. The private equity firm said in a regulatory filing Tuesday (June 25) that the financial terms of its June 3 offer “are final and will not be […]
Global investment giant Blackstone said on Monday it would pay a penny more to take over Hipgnosis Songs Fund (HSF), the London-listed company that owns Red Hot Chili Peppers’ catalog, because in a revised takeover plan disclosed Monday it is paying less in advisory fees. In a joint announcement, Blackstone and HSF’s board of directors said they approved the offer […]
Concord confirmed on Thursday it will no longer proceed with its $1.51 billion offer to buy Hipgnosis Songs Fund, giving rival bidder Blackstone a now unimpeded path to acquire the Merck Mercuriadis-founded company and its catalogs of the Red Hot Chili Peppers, Journey, Neil Young and others. Explore Explore See latest videos, charts and news […]
Blackstone looked poised to take over Hipgnosis Songs Fund (HSF) on Thursday after Concord Music said it would not outbid the global investment firm.
Concord surprised Blackstone and the broader market on April 18 when it announced it had the unanimous support of HSF’s directors to take over the troubled music royalty fund for £0.93 ($1.14), a bid that valued the company at $1.402 billion.
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Concord once raised its offer to $1.25 per share, but Blackstone stole the board’s endorsement when it made it a superior offer that valued the company at $1.6 billion on April 29. Concord said Thursday that its last offer was final and will not be increased, effectively bowing out of the bidding war.
While Blackstone’s bid still needs approval from 75% of Hipgnosis Songs Fund shares, it has been the most likely buyer for shareholders looking for an offramp from the 5-year-old fund’s tumultuous last six months.
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Hipgnosis Songs Fund’s assets, which include stakes in the catalogs of Red Hot Chili Peppers, Neil Young, Journey, Lindsey Buckingham, Blondie and others, are prized by its investors and rival music companies, but the fund has been plagued by management and accounting missteps that overstated both revenue and its portfolio’s valuation, according to a due diligence report by investment bank Shot Tower Capital released March 28. HSF’s share price plummeted after its board cancelled the dividend and slashed the value of its portfolio.
Blackstone already owns two other entities under the Hipgnosis name — the private music assets investment fund Hipgnosis Songs Capital (HSC) and the the Merck Mercuriadis-led investment advisor Hipgnosis Song Management (HSM) .
An option in HSM’s contract effectively makes Hipgnosis Songs Fund Blackstone’s to lose. The option, which dates back to the fund’s initial public offering in July 2018, stipulates that the entity that Blackstone owns could match any take-over offer for the fund’s assets, a clause intended to give artists confidence their song rights and royalties would not frequently change hands.
HSF’s board will meet in June and is expected to hold a shareholder vote to approve Blackstone’s bid, with a deal ultimately coming to a close possibly in mid-July.
Blackstone saw Concord’s most recent offer of $1.25 per share to acquire Hipgnosis Songs Fund and raised it a nickel to $1.30 on Monday, potentially putting a capper on a back-and-forth bidding war for the music rights company’s assets.
In a joint announcement, HSF and Blackstone said the board of directors of both companies approved of the revised all-cash acquisition of Hipgnosis’s assets at a value of nearly $1.6 billion, up from Concord’s most recent bid that valued the company at around $1.51 billion.
The new price reflects a 48.1% premium over HSF’s closing share price on April 17, the day before Concord’s initial offer became public. Any offer will require the support of investors representing at least 75% of the company’s public shares at a court meeting expected to be held on June 10; until that date, additional new offers may still be lodged.
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Blackstone’s official bid arrives a week after the private equity giant made what it called a “possible offer” of $1.24 per share, or roughly $1.5 billion, on April 22. HSF’s board of directors signaled that they would support that bid if it was made official, however two days later (April 24) Concord raised their bid by one penny and the board reversed and unanimously recommended shareholders approve the Concord bid.
With Blackstone upping the bid by $0.05, the board now says that “after careful consideration” the revised bid “represents a superior offer for Hipgnosis shareholders” compared to Concord — and now will recommend shareholders to access the new terms.
“The Board is pleased to unanimously recommend this [offer] for Hipgnosis from Blackstone,” said Hipgnosis chair Robert Naylor. “Since we started our strategic review, we have been clearly focused on looking at all the options to deliver shareholder value. We are delighted that, following competitive interests in acquiring Hipgnosis, our investors now have a chance to immediately realise their holding at an increased premium.”
The London-listed fund owns rights to songs by Neil Young, Journey, Lindsey Buckingham, Red Hot Chili Peppers, Shakira, Blondie and other artists.
Hipgnosis Songs Fund’s stock price fell 6.75% on the news, from $1.35 on Friday when Concord’s bid increase pushed the stock to a 52-week high to $1.26 by 9 a.m. Monday New York time.
Blackstone is also the majority owner of Hipgnosis Songs Fund’s investment adviser, Hipgnosis Song Management (HSM), and it funds Hipgnosis Songs Capital (HSC), a private music rights fund operated with HSM that has its own portfolio of music rights from such stars as Justin Bieber and Kenny Chesney.