Hipgnosis Songs Fund
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Concord’s $469 million bid for Round Hill Music Royalty Fund, announced on Friday, did more than give Round Hill’s shareholders a tidy premium over the previous day’s closing price. The offer, which must be approved by 75% of Round Hill shareholders at the company’s Oct. 18 general meeting, also provides a vote of confidence in music asset valuations and the ability of the marketplace to seek out value.
Andy Moats, director of music, sports and entertainment at Pinnacle Financial Partners, says Concord’s offer is “a win-win for all parties.” Round Hill, which had been trading at a steep discount to its catalog’s value, was offered a premium over the share price prior to the announcement. Concord gets to pay fair-market value for a catalog of 150,000 songs by the likes of Bruno Mars, The Supremes and Louis Armstrong.
The deal comes as Round Hill’s share price struggled to meet expectations and falls short of it the value ascribed by multiple independent experts. Concord bid $1.15 per share, 11.5% below the per-share net asset value (NAV) ascribed to Round Hill by Citron Cooperman, a leading valuation expert. Round Hill’s shares had been trading at a 47% discount to NAV the prior day and had fallen 11.5% year to date.
But the fact that Concord’s bid is slightly below Round Hill’s NAV shouldn’t be viewed as a negative, says Larry Miller, clinical professor and director of music business program at New York University. “When you see a liquidity event like this at even close to NAV, I think that is a sign of a strong business fundamentals, notwithstanding how some class of investors — in particular investors in alternative assets — might view the value of the catalog to NAV.”
Moats agrees that Concord’s bid should be seen as a positive despite falling short of Round Hill’s recent NAV. “It was consistent with what we’ve seen in the past” in terms of where deals transact, he says. Not all deals close precisely on valuations, Moats says. Some prices are above valuations and some fall below. The Round Hill price is “within range of what I’ve seen over the last five years where something trades relative to its valuation,” he says.
Other people see additional positives in Concord’s bid for Round Hill’s music royalty fund — which still leaves Round Hill with a substantial publishing and recorded music business. To some, the acquisition reflects a functioning market in which Round Hill’s music assets are moving to Concord’s more efficient cost structure.
Roy Salter, senior managing partner at Virtu Global Advisors, says the deal shows the market is working as intended. “Among the major messages symbolized by the Concord transaction is the continuing advancement of music royalty capital market efficiencies, wherein an increasing number of pension and profit-sharing funds, insurance companies, sovereign funds and similar capital market constituents are steadily entering the market in search of predictable, non-correlated investment returns, and business operations which support music royalty administration continue to be enhanced such as enables optimal market-efficiencies,” he says.
For others, Concord’s bid is an important vote of confidence for firms’ NAV models. “The key takeaway from this Round Hill deal is that it affirms the valuation methodologies that have been used for large music portfolios,” says Michael Poster, an attorney with Michelman & Robinson. “For all the negativity that has come out of a handful of analysts around some of these valuation methodologies, at the end of the day, the market tells the story.”
NAV, a measure of an investment fund’s assets minus debts and liabilities, has been a sticking point for Round Hill and the other publicly traded music royalty fund, Hipgnosis Songs Fund, in recent years. Citron Cooperman, FTI Consulting and other valuation experts employ valuation models that calculate music catalogs’ values by estimating their cash flows over a lengthy period of time. A company’s NAV can improve if the valuation expert believes the catalog merits a lower discount rate, for example, or because favorable industry trends suggest previous revenue forecasts are too conservative.
Some equity analysts have raised questions about not just the valuations but the music industry’s tendency to constantly update NAV. Most funds in other sectors hold their new acquired assets at cost “until there are verifiable reasons” — such as a market transaction — “to suggest a change is warranted,” Stiefel analysts wrote in a Jan. 7, 2021, note to Hipgnosis investors.
Over the last roughly two years, a gap between independent valuation expert’s NAV and Round Hill’s trading price had widened dramatically. The discount to NAV stood at 5% on Dec. 31, 2021, when Round Hill’s NAV was $1.12 per share, and peaked at 51.6% on April 3, 2023, when Round Hill fell to $0.615 per share.
To give the market more faith in its NAV, Round Hill commissioned a second valuation report, by FTI Consulting, that put its NAV within 3% of Citron Cooperman’s estimate. This additional valuation supported Round Hill’s view that its portfolio was being “significantly undervalued” by investors, Round Hill CEO Josh Gruss said at the time.
The move appears to have helped some: Round Hill’s share price rose 19.7% over the following month (Hipgnosis shares, not part of Round Hill’s efforts to change investors’ impressions, fell 4% over that period). But whether investors remained concerned with NAV methodologies or motivated by rising interest rates and other macroeconomic factors, Round Hill’s share price remained well below NAV until last week.
Concord’s bid also provided a boost to Hipgnosis Songs Fund shares that have also been trading at a deep discount to NAV. The day before Concord’s bid was announced, Hipgnsosis shares closed at 0.798 pounds ($1.00), a 58.3% discount to the company’s NAV on March 31 of $1.92. Whether investors regained faith in the NAV or expect Hipgnosis to negotiate a similar asset sale, its shares jumped 15.7% to 0.923 pounds ($1.15) the day of the announcement, peaked at 0.962 pounds ($1.20) on Tuesday and closed at 0.93 pounds ($1.16) on Wednesday.
Had Concord’s bid come in significantly less than NAV, there could have been ripple effects that touched everybody from banks to investors. In such a scenario, people would re-think the value of catalogs and their interest in investing in music assets.
But that didn’t happen. Concord and Round Hill, both widely considered to be smart players in the music asset market, agreed to a price tag close to the often-criticized NAV. If the market was looking for a signal about how to value Round Hill, it received a credible confirmation.
“There’s a lot of stability and consistency in this space,” says Moats, “and this transaction provides that.”
News that Concord plans to buy Round Hill Music Royalty Fund for $1.15 per share sent Round Hill shares soaring 64.4% on Friday (Sept. 8), from $0.6875 to $1.13 per share. They finished the week up 62.6%, leading all music stocks by a wide margin.
The deal, which must be approved by at least 75% of Round Hill’s shareholders at the company’s Oct. 18 general meeting, values the rights in the fund at nearly $469 million. On March 6, an independent valuation from Citron Cooperman put Round Hill’s economic net asset value at $519.6 million, according to the company’s 2022 annual report. That puts Concord’s bid at a 9.7% discount to economic NAV — a vast improvement from the 46% discount the stock had been trading at before the deal was announced.
Round Hill competitor Hipgnosis Songs Fund was also a beneficiary of Concord’s announcement. Shares of Hipgnosis rose 15.7% to 0.923 pounds ($1.15) on Friday, bringing the stock’s one-week gain to 16.8%. Hipgnosis shares have been trading at a steep discount to the company’s net asset value — a measure of the company’s catalog, less liabilities — and hadn’t closed above 0.923 pounds since Sept. 27, 2022. The fact that Concord found a buyer at a price close to its NAV could have signaled to Hipgnosis investors that its shares should be trading closer to its NAV. Some Hipgnosis investors may have also believed that, like the Concord deal, Hipgnosis could also find a suitor that would bid close to the NAV.
Round Hill and Hipgnosis were — by far — the biggest gainers of the week. Overall, the 21-stock Billboard Global Music Index dropped 0.8% to 1,348.41. Year-to-date, the index has gained 15.5%.
No other music stocks had a double-digit gain, and just six others finished the week in positive territory. Twelve stocks lost ground this week and one stock, music streamer Anghami, was unchanged. French music streamer Deezer gained 6.8% and was probably helped by its announcement of a partnership with Universal Music Group to adopt a new system for calculating streaming royalties. Universal Music Group shares improved 3.8% to 23.52 euros ($25.20).
Stocks were down around the world this week. In the United States, the S&P 500 fell 1.3% and the Nasdaq composite dropped 1.9%. South Korea’s KOSPI composite index lost 0.6%. In the United Kingdom, the FTSE 100 was a bright spot with a slight 0.2% gain.
With the help of Round Hill and Hipgnosis, the eight stocks in the record labels and publishing category on the Billboard Global Music Index had an average gain of 10.3%. The other categories saw losses; four live music stocks had a 0.9% average decline, six streaming stocks dropped an average of 3.9% and three radio stocks had a 4.7% average decline.
LiveOne shares fell 10.4% on Friday following the company’s spin-off of its PodcastOne segment on the Nasdaq exchange. That brought its shares’ one-week loss to 21.8%. LiveOne distributed about 19% of PodcastOne shares to LiveOne shareholders of record as of Sept. 5, but the podcast company’s trading debut got off to a rocky start on Friday. Trading under the ticker PODC, shares of PodcastOne owner and operater Courtside Group fell 45.1% to $4.39 from a starting price of $8 per share.
LJ Stoll was named GM/vp of A&R at The Hard Working Record Company, a new Nashville-based record label from Big Machine Label Group (BMLG) and management company Hard 8 Working Group. The venture was struck between BMLG president/CEO/founder Scott Borchetta and Hard 8 co-founders Dirk Hemsath and Rich Egan, along with partners David Conway and Mike Bachta. “Rich and I had been toying with the idea of starting a label again, since that’s the world we both came from,” said Hemsath in a statement. “We had been working closely with Scott and Big Machine on the artist Kidd G and Scott mentioned he wanted to start a more pop-leaning imprint and that’s the world we’ve been in heavily for the last few years, most recently building pop star Tate McRae.”
Hipgnosis Songs Fund global head of song management Nick Jarjour exited his role at the company “as I embark on an exciting new chapter in my journey,” the executive wrote on LinkedIn. “During my tenure at Hipgnosis, I had the honor of working alongside a visionary leader and mentor, Merck Mercuriadis who has achieved remarkable feats for songwriters and revolutionized the music industry for future generations,” he continued. Jarjour will continue serving as CEO of his label, publishing and creative agency JarjourCo.
Andrew Spence was promoted to general counsel at Sony Music Publishing UK, where he will oversee business and legal affairs strategies and initiatives on behalf of the company and its roster while also offering guidance and counsel on its legal and operational matters. The London-based executive will continue reporting to Sony Music Publishing UK president/co-managing director, UK/senior vp of international David Ventura and UK co-managing director Tim Major. He was previously head of legal and business affairs.
Edith Bo was named head of A&R at Rostrum Records, where she will oversee the overall direction of A&R strategy and develop strategic branding partnerships, working closely with Rostrum’s marketing team. Bo joins the company from SoundCloud, where she served as senior manager of publishing. She can be reached at edith@rostrumrecords.com.
Rob Segal joined The Feldman Agency (TFA) as partner/president of TFA Inc. Segal previously founded his own agency, Segal Communications, which became one of Canada’s largest promotional and licensing agencies, with clients including Sony, Ford, Marvel, HP and Dreamworks. In his new role, he will lead the agency in fostering new business, driving marketing campaigns and elevating its brand presence. Based at the company’s Toronto office, he can be reached at rob@feldman-agency.com.
Frederik Boutahar was named vp of A&R at Columbia Records Germany, Switzerland & Austria (GSA), which he will lead alongside vp Alexandra Falken. Boutahar will report to Sony Music Entertainment GSA CEO Patrick Mushatsi-Kareba. He joins the company from TwoSides, where he served as MD. He can be reached at frederik.boutahar@sonymusic.com.
Sebastian Mair joined digital rights management company Muserk as head of business development APAC. He will oversee the company’s business throughout the Asia-Pacific region. Based in Tokyo, Mair developed a relationship with Muserk via his company Music Solutions, which develops brand partnerships and VIP packages for artists touring Asia. He can be reached at sebastian.mair@muserk.com.
Metal label Nuclear Blast Records restructured its A&R department, promoting Nathan Barley Phillips and Shawn Keith to head of A&R, Europe and head of A&R, North America, respectively. Elsewhere, Tommy Jones was promoted to label manager, North America, which includes A&R responsibilities for Nuclear Blast’s existing roster in the region. A&R Jens Prueter was also named to the newly created role of head of catalogue/senior A&R. The label was acquired by Believe in 2018. Keith can be reached at Shawn@nuclearblastusa.com.
Jen Hubbard was appointed to the newly created role of director of sync A&R at Concord Music Publishing, where she will develop and manage Concord’s U.S. songwriter roster for the purpose of synch activity. She will serve as the bridge between the company’s A&R and synch teams. Based in Nashville, Hubbard reports to senior vp of A&R Brad Kennard with support from vp of publishing sync Kourtney Kirkpatrick and executive vp of global sync Brooke Primont. Hubbard previously served as director of A&R.
Avery King, formerly director of publicity at Elicity PR, formed her own public relations firm, King Publicity. She brings her longtime clients Carter Faith, Aaron Watson, Austin Burke and Anna Rose to the new operation. King can be reached at avery@kingpublicity.com.
Steve Eckerson was named GM at ASM Global’s San Diego-based venue Pechanga Arena. He joins from Mechanics Bank Arena, Theater and Convention Center, where he’s served as GM since 2016. Eckerson succeeds Steve Tadlock in the role. He can be reached at SEckerson@pechangaarenasd.com.
UTA announced the promotions of several staffers in its music division. Sean Hendrie was elevated to agent while Jack Benson, Eli Hanavan, Maria Kanatous, Elie Low, Cassie Trimble and Sydney Wilke were upped to coordinators.
LONDON — Hipgnosis Songs Funds reported a 7.5% year-on-year rise in gross revenue to $91.7 million for the six months ended Sept. 30, up from $85.3 million in the same period the previous year, at the company’s bi-annual presentation to investors, held in London Thursday (Dec. 8).
Net revenue — gross revenue minus royalties paid to songwriters under contract and administered catalogs — grew 5.8% to $78.4 million during the same period, while earnings before interest, taxes, depreciation and amortization (EBITDA) increased 16.9% year-on-year to $63.8 million.
Hipgnosis’ portfolio of over 65,000 songs, which includes hits by Dave Stewart, Timbaland, Journey, Mark Ronson and Barry Manilow, and includes the writer’s and/or publisher’s share of 13 of YouTube’s top 30 most viewed videos, has a net asset value (NAV) of $1.52 billion, down from $1.58 billion on March 31, according to the company’s mid-year financial results.
They report its “operative” net asset value as $2.22 billion, down from $2.24 billion six months prior. The aggregate fair value of Hipgnosis’ extensive portfolio was calculated by independent valuer Citrin Cooperman at $2.67 billion.
Speaking at the investor presentation, held at London’s Savoy Place, Hipgnosis’ founder and chief executive Merck Mercuriadis said he shared investors’ concern over the Guernsey-registered company’s share price, which has fallen by nearly 30% on the London Stock Exchange over the past six months as investor interest in music stocks has cooled. The share price at the close of trading on Monday was £0.81.5, down from £1.26.0 at the start of the year.
“I’m not going to pretend that the current share price is anything other than disappointing,” said Mercuriadis at the start of an almost three-hour presentation, which also included talks by Hipgnosis Songs Fund chief financial officer Chris Helm, Hipgnosis Song Management president and COO Ben Katovsky and chief music officer Ted Cockle, as well as a brief live music performance by rock guitarist Richie Sambora.
(Hipgnosis Songs Fund is the acquirer of music publishing and recording rights, while Hipgnosis Songs Management manages the publicly traded company’s catalog. There is also Hipgnosis Songs Capital ICAV, an investment vehicle established in partnership with Blackstone that earlier this year acquired Justin Timberlake’s back catalog, but is separate from the London-listed Hipgnosis Songs Fund.)
Mercuriadis said that Hipgnosis’ current share price “fundamentally undervalues the company” and he was confident the company’s extensive portfolio and proactive drive to grow revenues from its 146 catalogs, coupled with the continued growth of the global music industry, “supports our longer-term expectations for substantial revenue growth” and “will deliver superior shareholder returns over the medium term.”
Despite what Mercuriadis said was a “very challenging environment,” Hipgnosis operative net asset value per share remained steady at $1.8312 in the six months ended Sept. 30, which, when translated into pound sterling (at a sterling to dollar exchange rate of $1.2223), gave an equivalent net asset value of 149.82p as of Dec. 6.
Like-for-like pro forma (PFAR) revenues in the first half of the calendar year was $58.5 million, a 7.8% increase on the comparative period in 2021.
Over the last six weeks, Hipgnosis Songs Fund Ltd., the trailblazing acquirer of music publishing and recording rights, has been buying up a different kind of asset. Over seven transactions since Oct. 18, the company has been repurchasing its own stock, 250,000 shares at a time, to help support its slumping share price. So far, it has spent 1.5 million pounds ($1.8 million) to buy back 1.75 million of its shares. And while that accounts for just 0.14% of the roughly 1.21 billion issued shares, it underscores a crucial conundrum for the publicly traded company.
While, like much of the music business, Hipgnosis’ business has been steadily growing thanks mostly to booming music streaming revenues, its shares have lost 34% of their value year-to-date through Nov. 29. That decline is about six times worse than the 5.7% drop suffered by the FTSE 350 Media Index, representing 10 media companies on the London Stock Exchange. It’s more than triple the New York Stock Exchange composite index’s 10.1% deficit.
Normally, buying back shares lifts a company’s stock by both providing demand (which supports the stock price) and reducing the number of shares outstanding (which increases the per-share equity value). But since Hipgnosis began repurchasing its shares on Oct. 18, its share price has fallen 3.5% while the stock market has solidly improved: Over that time, the FTSE 350 Media index rose 6.8% and the New York Stock Exchange composite index rose 9.5%.
The share repurchases to date have been too few to move the needle. At the Sept. 21 annual general meeting, Hipgnosis’ shareholders approved a repurchase program that can buy up to 14.99% of its issued share capital through Dec. 8. So far, less than 1% of that allowable number has been bought back. And with less than 10 days left until the deadline, Hipgnosis is unlikely to make a much more meaningful dent. As of March 31, the date of Hipgnosis’ latest financial statement, the company had only $30 million in cash and about $100 million of borrowing capacity under its $700 million revolving credit facility. To buy back that full 14.99% stake at the current price and exchange rate would cost the company another $180 million.
But buying enough shares to directly impact the price isn’t necessarily the goal. The repurchase program can still act as a signal to investors that the company believes its stock is undervalued and is taking measures to address the matter. If all goes well, the decision to return cash to shareholders will end up boosting investor confidence in the music fund. That could ultimately help its share price, which is currently trading at a 46.7% discount to the company’s operative net asset value per ordinary share, according to the company’s July 13 mid-year earnings results. (Operative NAV is the fair market value of the catalog with amortization added back.) Even after considering its $570 million of debt (as of March 31), Hipgnosis shares are still trading 27.7% below the catalog’s value.
On paper, Hipgnosis should be a safe bet for investors: It buys dependable, recession-proof music intellectual property that churns out predictable royalties that are uncorrelated with the marketplace. The face of the company, founder Merck Mercuriadis, reshaped music investing by bucking the tradition of using debt to fund catalog acquisitions and launching the first publicly traded, equity-backed royalty fund that focused solely on music assets. Mercuriadis runs an investment advisory, Hipgnosis Songs Management, that collects a fee for managing the publicly traded company’s catalog. Mercuriadis declined to comment for this article.
From 2018 to 2021, Hipgnosis raised almost 1.3 billion pounds ($1.55 billion) through eight offerings on the London Stock Exchange, spending the money, and some debt, on established, proven songs — music publishing, recorded music catalogs and creator royalty streams — by the likes of Neil Young, Journey and Red Hot Chili Peppers. Mercuriadis and his team recommend catalogs for Hipgnosis Songs Fund to purchase and try to generate more revenue from its portfolio. Hipgnosis Songs Fund itself is a lean organization – it has a board of directors and a team of outside accountants, attorneys and other specialists – that collects royalties, pay dividends and operates with minimal overhead. Investors shouldn’t expect the triple-digit returns of a fast-growing tech company, but they shouldn’t face much downside risk, either. Decades-old popular music in a growing industry is a stable investment.
Hipgnosis’ pitch became particularly attractive as low interest rates encouraged investors to pour money into alternative assets like music as central banks cut rates to encourage borrowing to help combat a recession caused by the COVID-19 pandemic. But central banks have hiked interest rates in 2022 to ward off rising inflation, and Hipgnosis and companies like it have seen their share prices fall sharply. An Oct. 27 report by Trust Intelligence posits that Hipgnosis, along with other alternative asset funds, “has seen a significant share price de-rating as investors worry about the potential for valuations to fall in a rising interest rate environment.” Shares of alternative asset managers Blackstone Group – an investor in Hipgnosis Songs Management – and Franklin Resources are down 31.8% and 21.5%, respectively, this year despite the companies’ earnings beating expectations last quarter. Other music companies are having a tough year, too. Shares of Round Hill Royalty Fund Ltd., another music-backed investment trust that trades on the London Stock Exchange, are down 24.9% year to date.
The underlying business underpinning the Hipgnosis catalog and others like it, however, seems as healthy as ever. Global publishing and label revenues climbed 18% to $39.6 billion in 2021 on the strength of streaming services such as Spotify, Apple Music and YouTube. In the U.S., music publishers will enjoy a slightly larger share of subscription revenue from 2023 to 2027. Music subscription prices are rising, too – Apple Music hiked its monthly fees in October and Spotify appears ready to follow in 2023. Social media and short-form video apps such as TikTok are increasingly valuable revenue streams for both publishers and labels. Hipgnosis’s pro-forma revenue – which compares catalogs on a like-for-like basis and ignores recent acquisitions – in the second half of 2021 rose 11.6% from the first half, which was impacted by COVID-19 restrictions that hurt physical sales and performance royalties. In its latest fiscal year ended March 31, catalog additions helped gross revenue grow 24.7% to $200.4 million.
With its stock trading at a large discount to the value of its catalog, though, the company is unable to raise additional equity to expand its catalog. It certainly had plans to do so: In January 2021, Hipgnosis shareholders voted 98.6% in favor of a plan to sell 1.5 billion new shares. At the planned price of $1.68 per share, those additional shares would have raised $2.52 billion. Since then, however, Hipgnosis has sold only 199.6 million shares at an average of 1.21 pounds per share ($1.46), for a total of 241.4 million pounds ($330 million). Money has continued to pour into other funds for music acquisitions: Primary Wave took a $1.7 billion investment from Brookfield Asset Management in October; Influence Media Partners teamed up with Warner Music Group and BlackRock Alternative Investors in July; and last year, KKR partnered with BMG and Apollo Global Management backed upstart HarbourView Equity Partners to the tune of $1 billion.
The share repurchase program could have tangible results: the repurchase of 1% of shares would add 0.5% to the net asset value per share, reduce the dividend payment and “be accretive to annual income by $57,000,” according to JP Morgan Cazenove analysts. Investors could also look elsewhere to gain some confidence. In September, Hipgnosis reiterated its target annual dividend of 5.25 pence (6.34 cents) per share and announced an interim dividend of 1.3125 pence ($1.59) per share. It has also made moves to save money. In July, it reached a deal with French collection society Sacem for reduced administration expenses and collection fees. In October it procured a new revolving credit facility with a lower cost of debt and completed interest rate swaps that provide a hedge against rising rates.
More dramatic steps are available to raise cash, too. JP Morgan Cazenove analysts suggested in an Oct. 24 report that the company could sell “non-core assets” such as the Kobalt fund — 42 catalogs of more than 33,000 songs — it bought in Nov. 2020 for $323 million. The analysts also suggest Hipgnosis could sell part of its catalog to Blackstone, which took an ownership stake in Mercuriadis’ song management operation in Oct. 2021 and provided $1 billion for catalog acquisitions. That would allow Hipgnosis to reduce its debt and free up capital to repurchase shares or invest in new catalogs. Or Hipgnosis Songs Management could seek funding from Blackstone to acquire the entire Hipgnosis Songs Fund portfolio. Another option not mentioned in the report is to sell Big Deal Music, the independent music publisher that Hipgnosis Songs Fund acquired in 2020 and rebranded as Hipgnosis Songs Group, and focus solely on managing its catalog instead of signing and developing songwriters.
Following years of headline-grabbing moves, this has been a relatively quiet one for the publicly traded Hipgnsosis Songs Fund — there have been no acquisitions and no capital raised through stock offerings in 2022. In contrast, the other side of the business, Hipgnosis Songs Management, purchased the catalogs of Kenny Chesney, Justin Timberlake and Leonard Cohen through its venture with Blackstone, Hipgnosis Songs Capital ICAV. In addition, in August Hipgnosis Songs Management raised $222 million from a securitization backed by the royalties of 950 songs from Timberlake, Cohen and others.
Glimpses of what comes next, and how else Mercuriadis plans to address the stock price, could come soon. Dec. 8, the final day of the share repurchase program, is also the day Hipgnosis will release mid-year financial results and host a Capital Markets Day.