Is the slowdown in big-money music catalog deals officially over?

“Music assets are a hit when interest rates are low, but will investors change their tune as the Fed introduces hikes?”

It was a question asked by the Wall Street Journal in March 2022, and it was ahead of its time.

The Fed ended up raising interest rates on no fewer than seven occasions in 2022. The music M&A market, inevitably, felt the ripple effect.

Debt obviously became more expensive, as question marks hovered over whether investors attracted by music cash flows had access to the ‘cost of capital’ required to be competitive in the new marketplace.

On the seller side, artists and songwriters had to consider whether they’d accept lower multiples than they might have in the heady days of 2021.

By October last year, following a summer cooldown in big-money M&A deals, Grubman Shire Meiselas & Sacks partner, Joe Brenner, concluded: “I don’t think the current market is what it was.”

Summing up the landscape in a Billboard interview, Brenner added: “Multiples have contracted some, and I don’t think the appetite is the same — meaning the feeding frenzy for buying these assets that existed last year.”

Brenner was previously involved in huge nine-figure deals for catalogs from artists such as Bruce Springsteen, Sting, and David Bowie, all of which closed in late 2021 or Q1 2022.

And it was specifically deals above $50 million and into these nine-figure sums ($100m+) that seemed to decelerate in Q2 and Q3 last year, following a 2021 M&A market that saw more than USD $5 billion spent on music rights.

As Denise Colletta of City National Bank told Variety in December last year, when asked about a cooldown in the music rights M&A market: “Instead of the $400 million or the $200 million deal, there are a lot of $20 million and $50 million deals still happening.”

One deal that definitely wasn’t happening, and whose failure summed up the late-2022 slump in music M&A: Pink Floyd’s catalog sale.

Rumors rumbled for most of last summer that the legendary British band was looking to sell their master rights and other rights (neighboring rights, name & likeness) in a GBP £400 million-plus deal. But, in the end, nothing happened.

Merck Mercuriadis, founder of Hipgnosis Song Management, effectively declared the Pink Floyd bidding process over in a Q&A with his investors in December, noting: “It’s no secret to anyone that the Pink Floyd [recorded music] catalog was for sale not too long ago, and in the end that catalog won’t trade [at least, at the expected level].”

The past four months, though, have brought a noticeably more exciting climate for music’s M&A market – as the really big money starts moving again.

A sudden flurry of acquisitive activity suggests confidence may be swarming back towards the capitalization of music rights on Wall Street.

Exhibit A: Hipgnosis is spending big again

There is perhaps no better barometer of last year’s cooldown in nine-figure deals than a company many have come to observe as the talisman for the fortunes of the modern era’s catalog rights business: Hipgnosis.

Having declared its public fund – UK-listed Hipgnosis Songs Fund – “fully invested”, HSM began 2022 by utilizing a new source of cash, the private, Blackstone-backed fund, Hipgnosis Song Capital.

With this billion-dollar pot of capital to play with, HSM began last year in a hurry, announcing the acquisition of two rights portfolios – linked to Kenny Chesney and Leonard Cohen – in Q1 2022 alone.

In total, Hipgnosis Song Management announced three major deals last year using Blackstone’s money: the third, a $100+ million deal to buy Justin Timberlake’s song rights, arrived in May 2022.

Worryingly for the wider music M&A market, things then went quiet at HSM.  In fact, in the latter seven months of 2022, HSM failed to announce a single acquisition – let alone one in the nine-figure realm.

Industry speculators suggested to MBW behind the scenes that Hipgnosis was finding market conditions (particularly related to ‘cost of capital’ calculations) too tough to successfully deploy its $1 billion of Blackstone funding.

That tide, though, now appears to be turning.

In January 2023, Hipgnosis Song Management – using those Blackstone funds – announced the acquisition of Justin Bieber’s song portfolio, as well as the pop star’s income stream from his recorded music (owned by Universal).

That deal, according to sources, was valued at around $200 million. Significantly, it marked HSM’s first nine-figure deal since H1 2022.

After an arid second half of 2022, the Bieber deal seemed to open the floodgates for Merck Mercuriadis’s company. Within a week, HSM had also announced the acquisition of a song catalog from British hitmakers TMS, an acquisition thought to sit in the eight-figures.

And earlier this month, just a fortnight after its Bieber deal, HSM announced its acquisition of the full song catalog of Tobias Jesso Jr. – who’d just been crowned Songwriter of The Year at the Grammys.

(MBW also believes that Hipgnosis has, without making official announcements, acquired other catalogs from acts such as Nile Rodgers and Nelly Furtado in recent months.)

MBW can’t be 100% sure on the price of the Jesso Jr deal, but sources close to the private Hipgnosis fund tell us with certainty that HSM has now deployed approximately $700 million of Blackstone’s money.

Considering that, after the closing of the Justin Bieber deal in January, that lifetime spend figure was at approximately $600 million, according to our sources, it’s a reasonable bet that HSM just closed two deals cumulatively worth in the region of $100 million… in two weeks.

One well-placed source close to the private Hipgnosis fund told us this week: “Hipgnosis isn’t stopping there. It’s very near to a deal with a rock legend based in Los Angeles – multiple hundreds of millions of dollars, probably announced in April. And there’s more to come after that too.”

If those “multiple hundreds of millions of dollars” in that “rock legend” deal top $300 million, it will mean that HSM will have, by MBW’s calculations, exhausted the initial billion dollars of Blackstone’s private Hipgnosis fund.

There would appear to be no lack of further commitment from Blackstone; when Hipgnosis announced its billion-dollar fund in late 2021, sources suggested that Blackstone was likely prepared to deploy multiple billions more in the years ahead.

Exhibit B: The King Of Pop – and the rest of the nine-figure set

In fact, 2023 is looking so bullish, M&A-wise, that its biggest artist catalog acquisition may prove to be the biggest of all time.

During the news-blitz of Grammy Week 2023, Variety reported something of colossal importance: The Michael Jackson estate is apparently “nearing” the sale of half of its interests in the King Of Pop’s music catalog.

The front-running suitor, said the report, is Sony Music Group, which is teaming up with an as-yet-unknown financial partner* to explore the acquisition of the rights, which include the estate’s interests in Jackson’s publishing and recorded-music revenues.

The mooted price of the Michael Jackson deal? $800 million to $900 million.

(*Sony has form doing this; it previously teamed with Todd Boehly’s Eldridge Industries to fund a $500 million+ acquisition of Bruce Springsteen’s combined publishing and recorded music rights. Eldridge added funding to help bankroll the publishing part of the acquisition.)

The potential Jackson sale isn’t the only nine-figure pricetag bouncing around music’s M&A market in the wake of the $200 million Hipgnosis Bieber deal.

For one thing, Dr Dre has this year reached a $200 million-plus deal, reported in January, to sell a bundle of music income streams and some other catalog assets to a combination of Universal Music Group and Shamrock Holdings.

In addition, Scooter Braun – fresh from helping sell Justin Bieber’s songs to Hipgnosis for $200 million – just announced the ≈$300 million acquisition of hip-hop label Quality Control by home-of-BTS, HYBE.

(Braun, pictured inset, is CEO of HYBE America, following the $1 billion acquisition of his Ithaca Holdings by HYBE in 2021.)

And when it comes to ‘major’ music companies currently burning through acquisition capital – spanning both catalog acquisitions and corporate mergers – HYBE is definitely one to watch.

Adding to its Quality Control acquisition, the Korean firm also recently splashed around USD $330 million on a 14.8% stake in its K-Pop rival, SM Entertainment.

According to an investor note sent to shareholders, HYBE now wants to up its spend to ≈$900 million in order to secure a 40% stake in SM Entertainment… much to the annoyance of SM’s existing management team.

Exhibit C: Primary Wave, and its $1bn+ freedom funds

Amongst the doom and gloom of the “catalog slowdown” naysayers in 2022, one event really stuck out as running counter to the narrative.

Primary Wave announced in October a new $2 billion deal with Brookfield Capital.

As MBW explained at the time, once various internal fiscal to-ing and fro-ing had been accounted for, this agreement left Primary Wave with north of $1 billion in unspent, additional capital to play with in the marketplace.

Larry Mestel, CEO and founder of Primary Wave, told us at the time that his company had $600 million in agreed-but-not-yet-closed deals out in the market, having already spent $300 million in the first three quarters of 2022.

“We’ve actually never been busier,” said Mestel of Primary Wave’s M&A activity, somewhat flying in the face of the Fed-related doom and gloom. “We have an enormous amount of deal flow in the pipeline.”

Four months on, we have a better idea what Primary Wave’s deal flow at this time looked like.

It included now-announced acquisitions including deals with: Whitney Houston songwriters, Shannon Rubicam and George Merrill, believed to be worth between $50 million and $100 million; rock band Huey Lewis and the News ($20 million); and Joey Ramone of the Ramones ($10 million).

More recently, there was Primary Wave’s “monumental acquisition” – announced in January – of a catalog containing rights created by Robby Krieger and the late Ray Manzarek of legendary US rock band, The Doors.

Industry rumor-mongers say this was a ≈$70 million acquisition, adding more evidence to the idea that 2023 is already seeing more large-scale ($50m+) catalog buyouts than we saw in the whole of H2 2022.

(The sparse but notable exceptions to H2 2022’s big-money catalog deals slowdown included Concord‘s ≈$300 million acquisition of a catalog associated with Genesis.)

Exhibit D: Other investors filling their cupboards with cash

For a further indication that 2023’s catalog acquisitions marketplace is warming back up, you only have to look at who’s raising what.

Shamrock, who were involved in the aforementioned Dr Dre deal and have previously bought artist/writer catalogs covering the likes of Taylor Swift and Stargate, recently announced a new equity fund – partly targeted at buying music rights – with more than $600 million in commitments.

And over in Korea, K-pop and media giant Kakao Entertainment recently secured an investment worth around $1 billion from sovereign wealth funds, part of which it plans to use to develop its music operation via acquisition. (Kakao, like HYBE, has this month announced that it’s acquired a minority stake in SM Entertainment.)

Meanwhile, the CEO of New York-based Reservoir, Golnar Khosrowshahi, confirmed on her company’s quarterly earnings call earlier this month that: “Our pipeline is robust at nearly $2.3 billion in total value for prospective deals.”

Reservoir, which has acquired catalogs created by the likes of Dion and Leroy Clampitt in recent weeks, has typically acquired catalogs in the sub-$50 million range – explaining why Khosrowshahi last year said the macro-cooldown in music M&A deals hadn’t hugely affected her company.

However, as it showed when it bought Tommy Boy Records for $100 million in 2021, Reservoir has the ambition and financial firepower to enter the world of nine-figure deals when the time calls.

With Sony potentially focused on the Michael Jackson deal, what might the other major music companies swoop for in the months ahead?

MBW’s sources suggest we don’t lose sight of the Warner Bros Discovery music library sale process.

This portfolio of assets includes the soundtracks to a raft of classic movies and TV shows, from the Batman films to Fame and Singin’ In The Rain.

Our sources tell us that powerful music industry lawyer, Allen Grubman, is running point on this sale, and discussions have already begun across Major Music Company Land.

The seller is potentially looking for a 20-times multiple on NPS for the library, we’re told – which, if reached, would put its price comfortably above USD $1 billion (aka: a ten-figure deal).

Another one to watch: The potential sale of Canada’s Anthem Entertainment, previously known as ole, which itself owns a vast movie music library.

For example, in 2014, ole/Anthem acquired a portfolio of film and TV music rights from Sony Pictures for around $130 million.

Anthem’s CEO since 2019, Helen Murphy, recently left the company.

Whispers suggest that Anthem’s majority-owner, Ontario Teachers, is now considering a piecemeal sale of the company’s assets, which span verticals including Film & TV music, Production music, and Music Publishing.

Whether Anthem’s sold in bits, or in one go, expect one or more nine-figure agreements to be reached at some point in the future.

The conclusion of all of this activity?

After the interest rate-driven ‘big freeze’ of massive-money music rights acquisition stories, rhythm seems to be picking back up out there.

That rhythm will turn from a canter into a gallop if that Michael Jackson sale is pulled off at anywhere near $900 million.

That would be around double the size of the Bruce Springsteen rights sale to Sony in 2021 – at $500m-plus, currently the all-time biggest single-catalog music acquisition.Music Business Worldwide