Insights #013: The Acquisition of Hipgnosis
Hipgnosis is a music IP investment company. Founded in 2018 by Merck Mercuriadis, the company acquires catalogs of popular songs and earns revenue from their use in various media, such as streaming, broadcasting, and live performances. Hipgnosis has rapidly become a major player in the music industry, amassing a sizable portfolio of song copyrights from a diverse range of artists and songwriters. It has been raising significant capital through public listings on the London Stock Exchange, $700 million in debt financing from City National Bank, and the company has attracted attention from investors looking to diversify their portfolios with alternative assets and capitalize on the growing demand for music rights; however, the company has not made profitable investments, which in turn, has negatively influenced the Hipgnosis Song Fund.
Before these unfavorable effects, the Hipgnosis Song Fund peaked at $1.81 per share in December 2020, but since then, the stock has been on a downturn. Its lowest point was $.79 in March of this year, and this slump happened when Hipgnosis’ board suspended dividends for shareholders to help pay back its debts. Since 2022, the company has hovered just below $600 million in total debt that has yet to be paid back. Shot Tower Capital, an investment banking firm, released a report about Hipgnosis. One part to touch upon is that in their report, STC explains, “analysis suggests a current value lower than the purchase price on 67 of 105 catalog acquisitions.” Losing money on these catalogs and not being able to repay debts, has prompted companies to come in and bid for the rights to the Hipgnosis catalog.?
Two companies that offered the rights to Hipgnosis were Concord and Blackstone. Concord, an independent creative rights company, offered $1.4 billion for the Hipgnosis catalog rights, which at the time was a 32 percent premium on the closing price of the song fund. After the acquisition was completed, Concord intended to sell up to 30 percent of Hipgnosis assets within the first 18 to 24 months, but this plan fell short. Surprisingly, Blackstone, an investment management company, came into the scene and offered $1.5 billion, only for Concord to counter the offer with $1.51 billion. Finally, Blackstone offered $1.57 billion, winning the bidding war. If approved by Hipgnosis’s board, it is anticipated that the deal will close in the third quarter of 2024. Under the agreement, over 60,000 songs will be added to Blackstone’s portfolio, and according to Musictech, in addition to Justin Timberlake and Justin Bieber songs that Blackstone has already purchased the rights to, this agreement will add hits by Shakira, Ed Sheeran, Red Hot Chili Peppers, and Neil Young to Blackstone's catalog. With this buyout, Blackstone's influence only grows more prominent.
Blackstone Portfolio spans 230+ companies, and in 2023, they will reach $1 trillion in total assets owned. Before this bidding war, according to Billboard, “Blackstone was already the majority owner of Hipgnosis Songs Fund’s investment adviser, Hipgnosis Song Management (HSM), and it funds Hipgnosis Songs Capital (HSC).” Blackstone was partnered with Hipgnosis, and instead of having to work with a different company, like Concord, they decided it would be best to buy Hipgnosis in full. Blackstone's extensive portfolio and vast financial resources, coupled with its existing partnership with Hipgnosis, led to the strategic decision to acquire the company outright rather than engage in business with competitors like Concord.?
In just a few short years, Hipgnosis has emerged as a transformative force in the music industry, attempting to revolutionize the concept of Music IP investment. Under the stewardship of Merck Mercuriadis, it rapidly acquired a diverse array of song catalogs, capturing the attention of investors seeking alternative assets. However, after raising $700 million in capital through debt financing, at a time when the company was purchasing catalogs higher than face value, the company’s stock suffered greatly. This excessive spending caused a downturn that culminated in a bidding war for the company's catalog rights, ultimately resulting in a landmark acquisition by Blackstone.