Two billion, 200 and 6 million.
The approximate variety of music biz lunches since Hipgnosis Songs Fund floated in 2018 at which individuals have urged Merck Mercuriadis has overpaid for property.
Not likely… that’s simply the way it feels generally.
$2.206 billion is definitely the quantity spent in US {dollars} by Hipgnosis Songs Fund – by way of Mercuriadis – on catalogs up to now, as per HSF’s newest interim report.
So, has Mercuriadis (by way of HSF’s longtime funding adviser, Hipgnosis Music Administration) actually overspent on the catalogs owned by HSF right this moment?
We’ll tackle that query shortly. First, let’s focus on why it’s turn out to be much more apposite than normal.
Blackstone introduced right this moment (June 3), in tandem with HSF’s board, that it has very barely elevated its acquisition bid for HSF. (Technically, the bidding get together is Lyra Bidco Ltd, utilizing funds managed by Blackstone.)
Having crushed off a rival sequence of bids from Harmony, Blackstone says it’ll now pay USD $1.31 per share in money for HSF when it completes the deal.
That’s one cent per share larger than Blackstone’s earlier bid ($1.30). It will increase the entire money that Blackstone can pay for HSF’s property to USD $1.584 billion – a rise of $12 million vs. Blackstone’s earlier $1.572 billion bid.
Blackstone’s newest money supply suggests it’s assured of profitable widespread shareholder approval: The mannequin of Blackstone’s new $1.584 billion bid is being switched to a ‘scheme’, which requires approval from over 75% of HSF shareholders; its earlier acquisition bid solely required 55% approval.
Proper, then. With that every one clear, let’s get again to what Hipgnosis Songs Fund paid for its property… and calculate if it was price it.
Taking debt under consideration
First issues first: The brand new USD $1.584 billion bid from Blackstone (i.e., HSF’s market-approved valuation) represents HSF’s share worth however doesn’t symbolize its full enterprise worth — i.e., the complete price of the corporate’s property.
The principle cause for that is that enterprise worth (which we’ll calculate shortly) takes under consideration HSF’s debt.
In response to HSF’s most up-to-date interim fiscal report, the corporate’s complete debt stood at USD $674.0 million on September, 30 2023. That is probably the most up-to-date said debt determine we’ve for HSF.
Now. To calculate a public firm’s enterprise worth utilizing probably the most typical methodology, one should observe this equation:
- Market cap + complete debt – money = enterprise worth (EV)
Nevertheless, with Blackstone’s bid now publicly introduced (and accepted by the HSF board), we are able to make a tweak:
- Blackstone-bid share worth + complete debt – money = EV
The primary little bit of this equation is fairly simple:
- $1.584 billion (the newest Blackstone money bid) + $674 million (HSF’s complete debt as of September 30) = $2.258 billion
From right here, we simply must subtract HSF’s money pile.
Once more, our newest data on this matter is from HSF’s newest interim report for September 30, 2023. (This whole EV calculation estimate, actually, is a mix of Blackstone’s newest bid and HSF monetary information from September 30.)
So: On September 30, HSF’s “money and money equivalents” weighed in at USD $34.3 million.
So let’s do the do:
- $2.258 billion (HSF share worth plus debt) – $34 million (money) = $2.224 billion
There may be, although, only one extra consideration to make earlier than we arrive at a workable EV determine.
In December, following its newest FY, Hipgnosis Songs Fund offered 20,000 songs — which it known as “non-core property” — to a thriller get together believed to be Kobalt Music Group.
That money transaction was price roughly USD $23 million.
We should subsequently additionally minus the proceeds from this portfolio sale from our working complete to get probably the most correct EV doable:
- $2.224 billion share worth plus debt minus money) – $23 million (non-core sale) = $2.201 billion
What did HSF pay once more?
So… following the absolute best market check for the worth of HSF’s property (i.e., a real-life acquisitive bidding warfare), we’ve positioned a USD $2.201 billion enterprise valuation on the UK-listed fund.
To remind you, that determine is predicated on normal EV metrics mixed with Blackstone’s newest bid, plus the newest publicly introduced figures from HSF for debt and money.
Do you bear in mind what HSF paid for these property within the first place?
In response to its newest interim report, it was USD $2.206 billion. (This was for September 30, 2023, however took under consideration the upcoming sale of the non-core property.)
As you may see, the quantity HSM paid for property vs. the present enterprise worth of these property, are very near the identical.
Nevertheless, there may be yet another adjustment we have to make.
To get as shut as doable to the entire catalog acquisition value for HSF, we have to briefly immerse ourselves in ‘Proper to Earnings’, or RTI.
This accounting observe at HSF has triggered some controversy (notably in Shot Tower Capital’s criticism of the best way HSM has used it in ‘Professional-Forma Income’ calculations for HSF).
Nevertheless, it’s the one technique to arrive at a good net-of-RTI determine for HSF’s complete acquisition spending up to now.
Handily, a desk in HSF’s FY 2022 annual report offers us a mannequin for a calculation: What the ‘Pre-FY’ RTI was for acquisitions on the firm from FY19 by means of to FY22. (HSF has not made a fabric acquisition because the finish of FY22.)
Collectively, these ‘pre-FY RTI’ quantities throughout these years add as much as roughly USD $59 million (see under).
With these quantities faraway from HSF’s complete catalog value, we arrive at a brand new approximate determine for HSF’s net-of-RTI complete spend on catalogs: USD $2.147 billion.
This, in flip, means that HSF’s enterprise worth right this moment ($2.201 billion) is price a not-insignificant chunk greater than the entire quantity the corporate has spent on acquisitions up to now.
Your perspective on that truth will little doubt rely upon the place you sit in (or exterior of) the music trade.
Some will argue that the worth distinction between HSF’s property right this moment and their cumulative value ought to have been bigger in the timeframe (2018-2024).
Hipgnosis Music Administration would possibly argue that, ever since HSF’s first prospectus in 2018, it has known as for a long-term “purchase and maintain” technique from traders — even all through the comparatively high-interest fee surroundings of the previous two years – with the true worth of those property but to blossom.
HSM may additionally argue that the worth of premium, evergreen music property is now set for an additional surge – as Sony, assisted by monetary companions, reportedly considers shopping for Queen’s catalog at a ~$1 billion valuation.
Regardless, in gentle of Blackstone’s newest USD $1.584 billion money bid, the numbers recommend one thing you don’t usually hear in right this moment’s ultra-competitive, M&A-obsessed music enterprise:
Accusations of dramatic overspending at Hipgnosis Songs Fund, if you do the mathematics, sound a little bit out of tune.Music Enterprise Worldwide
