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everyone knew that day would come Hypnosis Song Foundation's The portfolio will be revalued at a lower amount than before. What we didn't know was how drastic a change it would be.
As MBW has covered several times over the past year, UK-listed HSF Employing US-based companies since emerging in 2018 Citrine Cooperman/Masarski Consulting Become that “independent evaluator.”
Citrine Cooperman Naturally, we used a proprietary formula to value HSF's assets during this period. This also includes the much-discussed 'discount rate'. 8.5%. (Some believed that because interest rates had risen over the past two years, the discount rate should have been higher, which would have reduced the valuation of HSF.)
Citrine Cooperman's recent valuation of Hypnosis Song Foundation concluded that HSF portfolio value was $2.62 billion. (This valuation is based on HSF's comparable revenue 14.0% compared to previous year For 6 months until the end of September. )
since then, Citrine Cooperman and HSF have parted ways – meanwhile HSF board We asked a prominent U.S.-based music M&A expert to conduct a „strategic review“ of the company. Shot Tower Capital.
Today (March 4th), shot tower We have provided a unique perspective on the value of an HSF portfolio in the modern market. It's a more conservative sight than Citrine Cooperman.
according to Latest information for investors From the HSF Board of Directors, shot tower We estimate the fair value of HSF's portfolio (as of March 1, 2024) as follows: while 1.8 billion USD and $2.06 billion (or between $1.74 billion and 2 billion dollars (after incidental catalog bonuses are deducted).
According to the HSF Board of Directors: shot tower HSF's valuation is $1.93 billionwhich represents a decrease in value. 26.3% vs it $2.62 billion Review by Citrine Cooperman (as of September 30th).
More simply: hypnosis songs fund iCurrent value is approx. $690 million It's less than before.
There are some interesting points about this formula shot tower was used to reach ~$1.93 billion evaluation:
We used the midpoint discount rate. 9.63%about 1.1% higher 8.5% Discount rate developed by Citrine Cooperman.
shot tower According to the company, that valuation takes into account how many of HSF's assets are „passive“ (i.e., HSF does not control the management, distribution, or licensing of the music). . This reasoning appears to be Shottower valuing his HSF's „passive“ rights at a lower multiple than its „active“ rights. shot tower I would say it's approximately 65% The majority of HSF's current royalty income is derived from „passive publishing, performance, and recorded music revenue sources.“ This number is 40% and 45%” Additional control rights are returned to the company.
Taken together, HSF's announcement today highlights the shot tower's $1.93 billion The midpoint evaluation is 15.9 times A multiple of net royalty income for the entire portfolio (before catalog bonuses are deducted).
Interestingly, it is 15.9 times Multiple is lower than recent US-based multiples code music byuniversal music groupinvested in $240 million buy 25.8% of shares with code last month.
Chord is a useful proxy here: Hypnosis Song Foundation, It owns a mixed portfolio of premium „passive“ and „active“ music assets. And now it's worth just as much. HSFan investment in UMG would result in a valuation of: $1.85 billion.
Universal told investors last week that of the code Make assets “active” 17 times EBITDA multiple“.
Please don't turn around in anger…
Hypnosis Song Foundation Shareholders may wonder why apparently UMG We intend to set a higher multiple on Chord's assets (17 times) Rather than Shot Tower actively investing in the assets of the Hypnosis Songs Fund (15.9 times).
But that's probably not the biggest problem HSFInvestor Regarding the company's new valuation.
In September 2023, the then HSF Board of Directors 2 bids accepted Sell part of HSF's portfolio.
The first bid was from what appears to be an unknown company. cobalt music groupwas for a transaction that saw sales of approx. 20,000 “Non-core” HSF assets are approximately $25 million.The transaction is Confirmed The final price for December is $23.1 million.
of other Did the then HSF board accept the bid? It was much bigger :A $440 million Offer from private Hypnosis Songs Capital (HSC) via the fund Hipgnosis Song Management (HSM)using black stone Cumulative amount equivalent to 29 catalogs 19% of HSF value At the time (according to Citrine Cooperman).
You probably already know the settings.t Hypnosis Songs Fund Investment advisor – Hipgnosis Song Management (HSM) – is also an investment advisor. HSC. (HSMwas founded by Merck Mercuriadis, itself co-owned by Blackstone. )
„a 19% Part of HSF's portfolio, after the Shot Tower evaluation, is valued at approx. $367 million – that's all $70 million few than $440 million Presented by Blackstone/HSC in September. ”
that $440 million The offer, in a nutshell, was: HSM Selling assets from “one side” to “the other” while at the same time boosting real world valuations to the portfolio (and possibly the post-trade stock price). HSF.
However, the deal never went through.
October 26th, Hypnosis Song Foundation Shareholders overwhelmingly voted against the „continuation“ of HSF in its current form. At the same meeting, HSF shareholders I slammed the door too. in $440 million Blackstone approached and promptly rejected the offer.
With a simple calculation, you can see why they are the same. HSF Shareholders may not like revisiting their decisions later.
of $440 million Offer from Blackstone/HSC/HSM Remember, in September, it was for portfolios of assets that collectively consist of 19% Percentage of HSF assets by value.
H.S.F. The board said at the time that the offer represented a discount of: 17.5% Comparison with the 'fair value' of the HSF portfolio at that time.
Now, let's see what happened: According to shot tower At the midpoint valuation, HSF's entire portfolio is worth today. $1.93 billion.
a 19% So part of that portfolio, after the shot tower valuation, is approximately $367 million – that's all $70 million few than $440 million Presented by Blackstone/HSC in September.
(Let me be clear that this is an approximation: shot tower Remember, the valuation takes into account „passive“ and „active“ rights, so how the Blackstone/HSC bid „19%“ portfolio would be valued based on that formula. It's difficult to know exactly. )
Is Blackstone “licking its lips”?
Them HSF fired investors Blackstone/HSC offer of „19% Portfolio“ So the view that prices are too low or opportunistic may be a little different today.
christopher brownhead of investment company research at JPMorgan Cazenove, writes as much in today's research note: Shot Tower News.
As a result of that path H.S.F. Mr. Brown noted that the company's new, much lower valuation means it will need to sell its catalog to reduce leverage over its head.
(Technically speaking, HSF's total leverage is just 28% Net asset value (NAV) 42%. Therefore, the debt burden needs to be reduced and significantly reduced. )
“Overall, the only silver lining of today's announcement is that it increases the likelihood of a Blackstone-backed HSM bid, which will no longer be considered low interest rates.”
Christopher Brown, JP Morgan
was suggested $440 million The sale of assets to Blackstone last year „now appears to be a missed opportunity,“ Brown wrote.
Mr Brown added: Blackstone/HSC/HSM It was scheduled to pay HSF's 'NAV' today to acquire the company's portfolio after Shot Tower's valuation. ”Blackstone/HSM It is possible that all or part of the portfolio could be acquired at a lower valuation than the canceled partial offer ($440 million). ”
„Overall, the only silver lining with today's announcement is that it increases the likelihood of a bid,“ Brown concluded. HSMwas supported by black stone, it would no longer be considered lowball. ”
Credit: Chutima Chaochaya/Shutterstock
That call option is (also)…
The big question: Can other parties win? black stone For punch and nuffle HSF Do you want to change your portfolio based on the new rating?
Technically yes – especially following the recent move away from the new look HSF board encourage companies to do so 'Large' offer of £20m (Read more about it here).
But back to why the “Bang” offer was launched… Merck Mercuriadis (aka Hipgnosis Song Management) and his “call options” as an investment advisor for HSF.
As MBW does, covered many times In the past, the HSM/Mercuriadis „call option“ dictated: HSM ever been fired H.S.F. For investment advisers, the following provisions are triggered: Allow HSM to retrieve HSF with a preset amount.
The preset total is the higher of: (I) Hipgnosis Songs Fund public market capitalization. (ii) Hipgnosis Songs Fund's „fair value“ is determined by an independent valuer (currently Shot Tower Capital).or (iii) The price that a trusted third party is willing to pay to acquire the HSF (i.e. matching rights).
“[The new shot tower valuation]increases the value of[Hypnosis Song Management's]call option, which becomes exercisable at or above the fair value of the portfolio in the event of a higher offer from a third party. ”
Christopher Brown, JP Morgan
Number (iii) is the most important here. That is, as long as the call option is in effect, black stone We are happy to accept any approach, but no one can „win“. HSC/Blackstone get it at auction H.S.F. assets.
As JP Morgan christopher brown „[Shottower's new valuation]increases the value of managers' call options, which can now be exercised at or above the portfolio's fair value in the event of a higher offer from a third party,“ he said in a note today. „It will be.“
robert naylor chairman Hypnosis Song Foundationcommented today as follows: “We are disclosing the valuation at this time given the material differences from previously disclosed valuations. The Board will provide further details on this once due diligence has been completed.
“The board remains focused on identifying all options to realize shareholder value.”