Hipgnosis Song Management
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.
Hipgnosis Song Management announced on Tuesday that Merck Mercuriadis will be stepping down as chairman of the music investment advisor. In giving his notice, which goes into effect upon closing of the proposed acquisition of Hipgnosis Songs Fund to private equity giant Blackstone, HSM’s founder called it the “right time” and a “timely opportunity for me […]
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.
Concord and Blackstone are in a bidding war to acquire the equity of Hipgnosis Songs Fund (HSF). On Wednesday (April 24), Concord bid $1.25 per share for HSF’s share capital, beating Blackstone’s offer of $1.24 per share (1.00 GBP), or $1.5 billion, announced on Sunday (April 21). In response to Concord’s latest offer, Blackstone said on Thursday (April 25) that it was “considering its options.”
Concord had opened with a bid of 0.93 pounds ($1.14) per share, equal to $1.4 billion, on April 18.
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Some investors are betting the bidding will go well above the current offers. On Tuesday, shares of HSF rose as high as 1.03 pounds ($1.28) respectively, 3.2% above Blackstone’s offer, and closed at 1.01 GBP ($1.26), 1.6% above its bid. Nearly 78 million shares traded hands that day — about 11 times the average daily trading volume over the previous three months. Even before Concord’s second bid of 1.00 pounds ($1.25) per share was announced on Wednesday, shares of HSF peaked at 1.016 pounds ($1.27) and closed at 1.014 pounds ($1.26).
Investors who want to capitalize on an eventual acquisition will buy HSF shares up to — but not equal to — their expected deal price. If investors thought the deal would happen at $1.30, they could bid up to $1.29 per share and make a small yet quick profit. Shareholders will vote on an acquisition offer at HSF’s June 10 shareholder meeting.
The same dynamic was recently seen after Believe became the subject of takeover talks. When a consortium of investors announced a bid of 15.00 euros ($16.04) per share, investors immediately bid the share price up to 14.22 euros ($15.23) but suspected it wasn’t wasn’t the final offer. Even before Warner Music Group (WMG) announced it was interested in acquiring Believe for at least 17.00 euros ($18.18) per share, shares were trading around 15.25 euros ($16.31), nearly 2% above Believe’s offer.
Concord could have two advantages that would allow it to bid higher than Blackstone: its source of funding and its ability to administer HSF’s portfolio. “If all else is equal,” Stifel analysts wrote in a Monday (April 22) note to investors, Concord can outbid Blackstone because it has a lower cost of capital — Michigan Retirement Systems, a state pension fund — and a superior ability to “extract revenue from an under-managed portfolio.”
But Blackstone has a trump card: Hipgnosis Song Management, which is majority owned by Blackstone, has an investor advisory agreement with HSF gives it a call option to acquire HSF’s portfolio if the advisory agreement is terminated. Stifel analysts believe the call option could act as “a deterrent” to prevent further price escalation — although it didn’t prevent Concord from bidding a second time. HSM appears determined to employ the call option. In a April 22 statement, HSM said it was “confident that the [Songs Fund] has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the [investment advisory agreement, or IAA].”
Investors run the risk that the bidding process for HSF won’t transpire as they anticipated. In the case of Believe, WMG never made a formal offer and eventually dropped out of consideration — which could leave investors who bought Believe shares as high as 16.58 euros ($17.73) in the red if the acquisition proceeds at the original 15-euros per share offer.
Hipgnosis Song Management (HSM), the investment advisor for the troubled music royalty fund Hipgnosis Songs Fund that has come under scrutiny for its handling of accounting issues, released a statement Monday (April 22) saying it has “repeatedly been blamed for many issues affecting the [Songs Fund] which were not HSM’s responsibility” and that it “will vigorously protect its interests should the [Songs Fund board] purport to terminate” it as investment advisor.
The statement comes after a wave of headlines in the past month dating back to the March 28 release of a report by Shot Tower Capital which alleged that HSM, as investment advisor for Hipgnosis Songs Fund — which owns full or partial rights to song catalogs from the Red Hot Chili Peppers, Shakira and Neil Young, among others — overstated its revenues, the scope of its assets and its earnings in disclosures to investors and regulators. That followed a vote last October in which shareholders first rejected a proposed sale of some of the fund’s song catalog and a subsequent vote of no to continuation — the equivalent of a vote of no confidence — in the fund’s previous board and its investment advisor HSM, prompting the formation of a new board with a new chairman, Rob Naylor. (Merck Mercuriadis, the founder of the fund, moved from CEO of HSM to chairman in February.)
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In the past few days, two potential takeover bids have been submitted to the board of Hipgnosis Songs Fund: one from Concord at $1.4 billion and the other from Blackstone, which is the majority owner of HSM, at $1.5 billion. The initial Concord bid suggested that the publishing company would take over management of the fund’s catalog from HSM, which would require 12 months’ written notice; a fee equal to one year of services; and, at the end of that year, allowing HSM to exercise a call option to buy the portfolio’s assets by outbidding any competing offer, according to previous filings.
In the new statement, HSM indicates that it would exercise that call option if it becomes necessary.
“Based on extensive legal advice we are confident that the [Songs Fund] has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the [investment advisory agreement, or IAA],” Hipgnosis Songs Management’s statement reads. “HSM has explained this in detailed legal correspondence with the [fund]. The [fund] has not responded to HSM on the legal arguments it has presented.
“HSM will vigorously protect its interests should the [fund] purport to terminate the IAA,” the statement continues. “We will use all means necessary to defend our contractual position and interests. It is important that shareholders, songwriters and artists understand that HSM has acted appropriately and professionally in our role as Investment Advisor and fully in accordance with the IAA.
“To be clear, were the [fund] to purport to terminate the IAA and/or hand HSM’s responsibilities under the IAA to a third party, HSM and its majority shareholder are fully resolved to protect all of our rights under the IAA, including the right to exercise the call option to acquire the [fund]’s assets.”
Earlier today, the board of Hipgnosis Songs Fund said that, were Blackstone to officially file its $1.5 billion bid to take over the company, it would support that option over the Concord bid from last week. And given Blackstone’s majority ownership of HSM, it would presumably follow that HSM would then continue in its role as investment advisor, meaning HSM would not have to exercise its call option in the end. The Blackstone bid is effectively the same as the call option.
Further bids may still arise as the situation continues to unfold. The next step would be a June 10 meeting in which shareholders would vote on approval of any bid that formally comes in.
Hipgnosis Songs Fund, the troubled publicly traded music royalty company that owns full or partial rights to song catalogs from the Red Hot Chili Peppers, Shakira, Justin Bieber and Neil Young, issued a damning report Thursday (March 28) compiled by a third party that details missteps the fund and its investment advisor made leading to a 26% portfolio downgrade earlier this month.
The London-listed fund, which became the poster child for music as an investable asset class, cut the value of its portfolio earlier this month and told investors not to expect the resumption of dividends “for the foreseeable future” while the company focuses on paying down debts.
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Compiled by the board’s lead independent adviser, Shot Tower Capital, the report found that Hipgnosis Song Management, run by Hipgnosis founder and music manager Merck Mercuriadis, materially overstated the fund’s revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) and supported catalog acquisitions with financial analysis that failed to meet “music industry standards.” Hipgnosis Songs Fund itself overstated the scope of its music assets — the kinds of royalties and administration rights it owned and its share of those rights — in disclosures to investors and regulators. And in a pitch last September to investors to sell some 29 catalogs to a sister Hipgnosis company, the fund included a better-than-could-be-expected post-deal valuation, the report found.
In a statement announcing the report, the fund’s board said it is exploring “all options for the future of the company,” and that it will release its strategic review and proposals by April 26.
Hipgnosis Song Management said it was still reviewing the report, which it received late yesterday. “However, there are aspects of the report that HSM strongly disagrees with and considers to be factually inaccurate and misleading,” the company stated.
“Throughout the life of the company, HSM has worked constructively, and in good faith, with the company’s board and other advisers to deliver the best outcome for the company’s shareholders,” the company continued. “Each adviser was recruited by the company’s board to advise on their specific area of expertise and with clear areas of responsibility.”
Investors found heart in the report; at the close of London markets on Thursday, Hipgnosis Songs Fund was trading at 0.69 pounds ($0.87), up 8.3% on the day and 30.43% above its 52-week low of 0.53 pounds ($0.69) set on March 4.
Here are some of the most revealing findings from Shot Tower’s report:
“The Fund overpa(id) for the majority of the catalogs it acquired.”
Hipgnosis Songs Fund, at the investment adviser’s direction, famously paid top-dollar for music assets — more than $2.2 billion overall. Today, those assets are worth $1.948 billion, with 67 of 105 acquisition deals currently worth less than their purchase price.
The investment advisor’s “diligence and underwriting standards” are the reason why.
Hipgnosis Song Management predicted aggressive growth, but three-quarters of its catalogs missed those expectations “by an average of 23% annually” and the overall annual royalties the fund earned from catalogs has fallen to $121.6 million from $134.2 million.
“Passive catalogs grew significantly better than catalogs managed by the Investment Advisor.“
A significant portion of the rights the fund had in its portfolio included passive rights. However, Mercuriadis and Hipgnosis Songs Fund’s board frequently touted that their industry expertise would be a valuable tool to make these rights outperform passive catalogs.
“The fund’s public reports contain disclosures that imply greater ownership control over songs… than would have been the case.”
Multiple reports from the fund presented that it had 100% “interest ownership” in acquired catalogs, which suggests ownership and control. “In fact, a material number of catalogs represent only a fractional, non-controlling income stream in the compositions without any copyright ownership,” the report reads.
Despite promoting itself as a caretaker of artists’ and songwriters’ works, Mercuriadis’ investment advisory group “failed to invest in systems and provide the services required to effectively manage a catalog of 40,000+ songs generating +120 million of royalty income annually.”
Hipgnosis Songs Management has not tracked or managed the catalog at the song level, and its legal bookkeeping included numerous oversights and missing files that could present complications to the collection of royalties.
The report found “multiple areas where fund expenses appear unrelated to the fund and/or are excessive.”
These costly items included $1.5 to $2 million spent annually for awards shows and public relations, “including significant payments to multiple music industry periodicals”; $1.2 million in fees in 2023 from deals the fund ended up not doing; and $5.7 million in fees related to the abandoned deal to sell catalogs to its sister fund, Hipgnosis Songs Capital.
Merck Mercuriadis will step down as chief executive officer of catalog investment advisor Hipgnosis Song Management, the company announced on Friday (Feb. 2). The executive, who spent years managing the careers of artists like Elton John, Beyoncé and Guns N’ Roses before launching Hipgnosis, will transition to a newly created chairman role and will continue to “lead engagement” with industry stakeholders on behalf of the business, it said.
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Taking on the CEO role will be Ben Katovsky, HSM’s president and chief operating officer since joining the company in October 2022. He boasts almost two decades of experience in the music industry, most recently in a seven-year tenure as chief operating officer at BMG.
“One of our most important goals has been to bring an institutional rigor to Hipgnosis Song Management,” Mercuriadis said. “Over the last 16 months, Ben has done an amazing job building the team and HSM’s capabilities to deliver the best possible service to our clients and I’m certain this appointment makes us stronger.”
Added Katovsky, “I am proud to be asked to lead HSM through its next chapter, building on all Merck has achieved. In my time in the music industry I haven’t come across anyone who can match his rapport and relationships with songwriters and artists.”
Hipgnosis Song Management is the investment advisor for Hipgnosis Songs Fund, the publicly-listed royalty fund with a catalog that includes stakes in songs by Neil Young, Justin Bieber, Journey, Lindsey Buckingham, Blondie, Justin Timberlake and many other artists and writers. HSF capped a turbulent 2023 by lowering the value of its catalog following what new board chair Robert Naylor described to investors as a strained relationship with the Mercuriadis-led HSM over the catalog’s value.
A third Hipgnosis, Hipgnosis Songs Capital, is a joint venture between HSF and investment giant Blackstone. It is wrapped in a proposal to acquire 29 catalogs for $440 million to help the public fund reduce its debt and improve its share price.
In January, the public fund’s board of directors leveled several complaints against its namesake advisor, calling into question its ability to field competitive bids for its trove of assets. A main sticking point is the investment advisor’s call option — a right to purchase the company’s catalogs if its contract is terminated with less than 12 months’ notice, among other scenarios — which the board contends harms the fund’s ability to receive competitive bids.
The fund’s board wants to make the bidding process more attractive and on Jan. 18 announced a proposal to pay bidders a 20-million-pound ($25.4 million) fee to cover due diligence and acquisition costs when they pursue a purchase of HSFs assets. Shareholders will vote Feb. 7 on that proposal.
HSM said in its announcement that it has sought approval from the fund for the management transition.
In further comment, Katovsky praised HSM’s two clients — HSF and HSC — for their “vision, ambition and on-going commitment to grow music as an asset class through HSM,” and said he hoped to collaborate well with the fund’s board going forward.
“I particularly hope we will be able to work constructively with the Board of Hipgnosis Songs Fund Ltd, as I believe that HSM is best able to deliver value for their shareholders whether they decide the Company has a future as a long-term operation or wish to pursue the sale of assets following their strategic review,” he said.
Added Mercuriadis, “Having invested almost $3 billion on behalf of our clients in extraordinarily successful songs we are at an important juncture in our development where the services we provide to our clients are of paramount importance. Our commitment remains stronger than ever. We look forward to continuing our work with songwriters and the creative community to create the greatest possible opportunities from the iconic and culturally important Songs which we manage on behalf of HSM’s clients.”
Hipgnosis Songs Fund’s board of directors levied two complaints at its investment advisor, the Merck Mercuriadis-led Hipgnosis Song Management, on Tuesday (Jan. 23) that call into question the company’s ability to field competitive bids for its assets. Shareholders have told Hipgnosis Songs Fund’s newly constituted board they believe the investment advisor’s call option — a […]
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