Shamrock Holdings

Dr. Dre is selling a bundle of music income streams and some owned music assets in a deal that was seeking $250 million when it came to market, according to sources. Those assets, which generate almost $10 million in annual income, are being acquired, apparently in two separate deals, by Shamrock Holdings and Universal Music Group. Both deals are said to be close to completion and were shopped by Peter Paterno, name partner in King, Holmes, Paterno & Soriano, sources say.

The assets include mainly passive income streams, according to those sources, such as artist royalties from two of his solo albums and his share of N.W.A. artist royalties; his producer royalties; and the writer’s share of his song catalog where he doesn’t own publishing, which may include the writer’s share of songs on his The Chronic album, which is published by Sony Music Publishing. Sources say that portion of the bundle comprises 75% to 90% of the package’s revenue and is most likely being acquired by Shamrock, which owns some Taylor Swift master recordings, among other past acquisitions. The remaining 10% to 25% of income in the package is generated by owned assets and is probably being acquired by Universal Music Group.

The latter Dre-owned assets that are said to be headed to UMG include the ownership of the master recording of his first solo album, The Chronic, which is scheduled to revert from Death Row Entertainment to Dre in August of this year; his share of an Aftermath/Interscope joint venture with the Top Dawg label for Kendrick Lamar releases through that deal; and maybe some publishing, though it’s unclear exactly which portion of his song catalogs is included. The bundle of offered assets doesn’t, however, include his ownership stake in the Aftermath label, which he co-owns with UMG’s Interscope.

The way the assets are being divided in the sale process fits with each buyer’s strategic profile. Shamrock, as a financial player, is much more interested in income streams and hopefully incremental valuations down the line. UMG, as an industry strategic player, is more interested in owning music assets than in buying passive income streams controlled through ownership or administration by competitors. Plus, ownership of Dr. Dre assets would give UMG the added bonus of enjoying a closer relationship with the rapper/producer, who — along with his co-ownership in Aftermath — has been on Interscope Records for most of his solo career.

While the sellers were seeking $250 million, sources suggest that the combined payments likely fell short but will collectively bring in upwards of $200 million, which would imply a 20-times multiple. But not all of the pieces of the bundle individually carry that type of multiple. Some of the Dre assets could be trading hands at a lower multiple.

UMG declined to comment while representatives from Dr. Dre’s camp and Shamrock Holdings could not be reached for comment.

Dr. Dre is one of the pre-eminent producers of his generation, as well as a rapper and songwriter who has worked with some of the most iconic R&B and hip-hop artists of all time, including Snoop Dogg, Eminem, 2Pac, Mary J. Blige, Busta Rhymes, 50 Cent and Lamar. He initially rose to fame as a co-founder of seminal gangsta rap group N.W.A in the 1980s, before releasing his first solo album, The Chronic, in 1992, which is widely regarded as one of the best hip-hop albums of all time and ushered in the West Coast G-Funk movement that helped to popularize the sampling of 1970s and 1980s funk music by the likes of Parliament, Funkadelic and Ohio Players. That album was released under Death Row Entertainment, the pioneering hip-hop label Dre co-founded with Suge Knight that would rise to fame with releases by Dre, Snoop Dogg, Tha Dogg Pound and 2Pac, who became the label’s marquee artist.

Dre would later found Aftermath Entertainment, his own imprint through Interscope, through which he would sign Eminem, 50 Cent, Lamar and Anderson .Paak, among others. In 1999 he released the followup to The Chronic, titled 2001, which was similarly celebrated, with star turns from Snoop Dogg, Eminem, Nate Dogg, Kurupt, Xzibit and others. In 2015, the famously perfectionist Dre would release his third album, Compton, a companion to the N.W.A biopic Straight Outta Compton, which was also released that year. As a solo artist, his three studio albums have amassed close to 20 million album consumption units, with 2001 at 11 million units and The Chronic at 6.6 million units. On an annual basis, those albums have averaged about 600,000 units over the last three years.

Dre also co-founded Beats Electronics alongside Interscope co-founder Jimmy Iovine in 2006, initially as a headphone brand. In 2014, the company morphed into a streaming service, Beats Audio, as well. The company was subsequently purchased by Apple later that year for north of $3 billion, turning Dre into a billionaire, while the Beats Audio streaming service became the backbone of what became the Apple Music streaming service, which was officially introduced in 2015. In subsequent years, Dre and Iovine donated $70 million to the University of Southern California, endowing a program that became the USC Jimmy Iovine and Andre Young Academy for Arts, Technology and the Business of Innovation. Lately, his production has appeared on releases by Anderson .Paak, Eminem and DJ Khaled.

With Dre coming to market and having found a buyer, the deal marks an acceleration of a run on hip-hop/rap assets kicked off by the acquisition of music assets owned by Future and production songwriter duo Andre Harris and Vidal Davis, better known as Dre & Vidal, in groundbreaking deals that finally brought private equity into the R&B/hip-hop/rap world. Future’s assets were acquired by Influence Media Partners, while the latter duo’s assets were purchased by HarbourView Equity Partners. Up until those deals, private equity had been primarily interested in classic rock, country or current mainstream pop music.

Dr. Dre has been in the news lately after his lawyers called out Rep. Marjorie Taylor Green for using his song “Still D.R.E.” in a video posted to social media without permission. A cease and desist letter signed by Howard King of King, Holmes, Paterno & Soriano LLP informs the Congresswoman that Dre “ will never grant [Taylor Greene] permission to broadcast or disseminate any of his music.” While Dre appears to be selling a large portion of his music rights, that doesn’t mean that the Congresswoman may eventually be able to license his music from some other owner. When such deals are being done, an artist or songwriter might want to retain some control over song use approval rights, though that could result in a discount to a deal’s valuation.

Dan Rys provided assistance in preparing this story.