Royalties investment company Hipgnosis Songs (SONG ) has continued its buying spree with the $322.9m (£248m) acquisition of 42 song catalogues from its administrator, as new rival Round Hill separately reveals a big backer for its forthcoming flotation.
The £933m Hipgnosis closed-ended fund has bought the portfolio of Kobalt Music Copyrights, a fund owned by family offices and institutional investors, a transaction which it flagged up in September when it raised £190m in a new share issue.
The purchase – which is also partly funded by Hipgnosis’ $400m credit facility – brings 33,000 songs by 1,500 artists across a number of genres, including pop, rock, hip hop, and jazz. The deal was priced at a multiple of 14.8 times the historic annual income from the portfolio, which grew income by 6% to $18m last year.
The Kobalt portfolio includes hits such as ‘Go Your Own Way’ by Fleetwood Mac, ‘All I Want for Christmas is You’ by Mariah Carey (pictured), ‘Love Shack’ by the B-52s, and ‘Teenage Dream’ by Katy Perry.
The deal takes the Hipgnosis portfolio to 117 catalogues and a total of 57,000 songs, with an acquisition value of £1.18bn.
Merck Mercuriadis, founder of Hipgnosis and former Beyonce manager and Sanctuary record label boss, said the company already had a ‘special relationship’ with Kobalt making the deal a ‘natural’ progression. He said the Kobalt portfolio was of ‘great cultural importance’.
Numis analyst Priyesh Parmar said the purchase was ‘a significant transaction for Hipgnosis’ and as it had to draw on its revolving debt facility to top up its coffers ‘we would not be surprised to see the fund raising further equity’.
Hipgnosis is in a position to issue more shares as its 4.5% yielding stock stands on a small premium of 3% over estimated net asset value of 113.4p, according to Christopher Brown, analyst at the trust’s corporate broker JPMorgan Cazenove.
‘The challenge for SONG will be to integrate the catalogues into its existing portfolio, and ramp up its team to be able to more actively manage them, but with Kobalt already being administrator at least the portfolio integration should be much simpler, said Brown, who retains an ‘overweight’ rating on the Guernsey investment company.
The growth of the Hipgnosis fund comes as it faces competition from a new rival in Round Hill Music Royalty fund, an investment company deriving an uncorrelated income stream from music royalties that is set to list this month.
The New York-based publisher is aiming to raise $375m for an investment trust listing in London and said it has an investment pipeline of 120,000 songs, including classic hits by The Beatles, Rolling Stones, and Celine Dion.
Round Hill was set up in 2010 by former Bear Stearns banker who had also worked at Sony Music and Atlantic Records but two revisions of the company structure have been made ahead of the float in order to secure investment from asset manager M&G.
In a stock market update, Round Hill said it had ‘been involved in a process of due diligence undertaken by M&G’ (MNG), the UK fund manager with £339bn of assets under management at the end of March.
In order to secure M&G as a cornerstone investor Round Hill has agreed to make ‘minor amendments to certain of the investment restrictions’ and introduce a ‘key person provision in the investment management agreement’ between the trust and the manager.
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