Regular readers of Music Business Worldwide don’t need to brush up on who Merck Mercuriadis is – or their preference for buying big music rights for big sums from the Hipgnosis Songs Fund.
Yesterday (February 8), wealth management firm Investec criticized an interesting aspect of hipgnosis that has not received much attention: when Mercuriadis’ UK-listed company made an announcement regarding the acquisition of a songwriter catalog, hardly any price was mentioned.
Historically, Hipgnosis has only publicly cited the price paid for two of its buyouts: the first catalog acquisition ($ 23 million for a 75% stake in The-Dream’s song portfolio, announced July 2018) and the largest catalog acquisition ever ($ 322.9 million for a Kobalt-managed fund announced in November 2020).
Every further catalog acquisition by Mercuriadis was announced to the media (and the markets) without a price.
Investec’s criticism of this practice was found in a research report that found a rival to Hipgnosis – the Round Hill Music-managed fund that recently went public on the London Stock Exchange – made a “buy” for hungry shareholders was.
One of the reasons Investec was optimistic about the Round Hill Fund was that it offers “transparent disclosure” which the firm considers to be “industry leaders”. In other words, Round Hill tells the world (and its investors) exactly what the fund pays for assets it acquires.
We saw this last week when Round Hill confirmed that its UK fund (Round Hill Music Royalty Fund Ltd.) had successfully acquired a bundle of copyrights for $ 282 million from another private fund (“Fund One”) which also managed by Round Hill. Round Hills Fund further announced its intention to purchase Fund One’s final copyrights – a 29% stake in the Carlin song catalog – for approximately $ 81 million by March 31.
“We are impressed with the transparency Round Hill has provided on this acquisition. This is in stark contrast to Hipgnosis, which provides little or no financial information on each acquisition.”
Investec Research Note
Investec wrote, “We are impressed with the transparency Round Hill has provided on this acquisition. The Investment Manager has made extensive financial information available on its website regarding the transaction and the assets acquired. This includes the most important acquisition details such as price, multiple and portfolio NPS, but also case studies, transaction overviews and historical NPS for each catalog as well as projected growth rates for individual sources of income that are used for the valuation. “
Investec’s note went on (damn tone optional), “This is in stark contrast to Hipgnosis, which has little or no financial information for any acquisition and very little detail about the assumptions made in its valuation.”
Investec’s stance was reiterated today (February 9) in The Times newspaper – with a dash of extra poison – by Alistair Osborne, the chief commentator on the publication.
The suggestion that Merck Mercuriadis’ “spell was broken” has condemned Osborne Hipgnosis for “dubious disclosure” of the prices paid for its acquisitions.
Oborne suggests that the corresponding disclosure in Round Hill’s catalogs is “on a different scale” compared to Hipgnosis.
He praised the transparency Round Hill offers investors through “2011 annual revenue, key valuation metrics and details of value creation plans.”
All of this, according to Osborne, is in stark contrast to “Mercuriadis’ trust-me-income approach: a man who had incentives to top up the fund because he also owns 57% of his investment advisor”.
Hipgnosis would no doubt counter that its filings provide shareholders with a satisfactory level of disclosure of total spend and acquisition multiples without the need to delve into individual catalogs.
For example, Hipgnosis’ interim report released in December 2020 announced that the company had spent around £ 1.18 billion on 117 catalogs between its IPO in 2018 and late September 2020.
It was also announced that this £ 1.18 billion has been used to purchase assets at a price equal to a mixed purchase multiple of 14.76x historical annual income [of the acquired assets]”.
Hipgnosis has disclosed both its semi-annual and annual earnings and profit / loss as it has done since its inception.
The Times may be more impressed when Hipgnosis ‘numbers “go back to 2011” like Round Hill did, but that could be difficult given that Mercuriadis’ company was founded seven years after that date.
However, aside from whether or not Hipgnosis is providing enough information to investors compared to Round Hill, strategy is far more important.
I’ve never paid much attention to the old music business adage that somehow there are “music people” and then “money people” – on the grounds that anyone whose life has been irrevocably changed by a record develops an automatic sensitivity to the idea of must have the artistic temperament. But the illogical attitude towards Alistair Osborne’s criticism kicked me on the pedals.
Songwriters are known to be sensitive beings. Many of them, like many of us, enjoy money.
But to talk about it? To beat something publicly like a gauche and use it as a price tag for a music collection that was invented over the course of a career with pain, love and magic?
Such things leave a sharp taste in most musicians – not to mention being red in the face – and Merck Mercuriadis knows it.
I have not yet asked Mercuriadis if there is any intent to omit a price in the Hipgnosis announcements, but I am ready to put some serious money (not Hipgnosis-serious money, sanity) on it.
Whether it’s buying a catalog from an artist as famous as Neil Young, or from a gunslinger like Mark Ronson or Starrah, will discretion become an invaluable part of the negotiating ritual?
Surely it is a very delicate time when the complicated dance of convincing a musician to hand over the keys to his music rights is nearing its ultimate end?
And surely the idea that a big, ugly dollar number might consequently be put in front of headline writers is best to avoid lest it get pissed off quickly?
The Round Hill Fund doesn’t have to worry about this problem right now: With assets being purchased through Round Hill Music, no single songwriter involved is currently at risk of being overwhelmed for their “Megabucks Payday”. (This was exactly the same situation when Hipgnosis acquired the copyrights of the Cobalt Fund … and declared the price.)
It’s not that Round Hill himself doesn’t value the value of tax discretion in artists and songwriters. Because of this, the private funds recently announced the acquisition of assets from the likes of Massive Attack, Billy Duffy of The Cult, and Bryan Adams employee Jim Vallance … with no dollar or cents given.
Other Round Hill deals with greats like Craig David and Rob Thomas have since been heralded as mere “publishing deals” without mentioning the related acquisition of the copyrights of these artists – which further points to the sensitivity of songwriters’ sell-offs.
You can see this pattern everywhere from Universal’s acquisition of Bob Dylan’s catalog (believed to be between $ 350 million and $ 400 million, but not announced) to KKR’s acquisition of Ryan Tedder’s catalog (estimated to be $ 200 million) , but not announced) to Vine Investments ‘acquisition of Calvin Harris’ catalog (estimated to be around $ 100 million, but … you have the picture).
All the deal makers behind these buyouts know what Hipgnosis knows: Artists don’t want intricate details of their earnings to be shown off to investors, let alone their fans, especially when it comes to the potentially difficult process of getting away from their song to adopt rights.
Merck Mercuriadis has regularly educated investors about why song rights are similar to investments like gold and oil (their stability, their underlying consistency of returns, etc.). But he also knows that gold and oil have no ego and don’t get upset. Neil Young does and could. Bob Dylan does and could. Stevie Nicks does and could.
Such a scenario is best avoided.
If investors in Hipgnosis-competing funds are serious about the guarantee that every single price of every single deal will be publicly disclosed, they are free to do so.
Be warned, however, this creates a serious market disadvantage. A Merck Mercuriadis would undoubtedly be happy.Music business worldwide