The Hipgnosis Songs Fund’s catalog turns out to be worth more than many people thought.

2 billion 206 million.

Approximate number of music business lunches since Hipgnosis Song Fund What people suggested in 2018 Merck Mercuriadis You overpaid for the asset.

Not really… Sometimes it feels like that.

$2.26 billion This is the actual amount spent in US dollars. Hipgnosis Song Fund – Via Mercuriadis – Catalog to date according to HSF Latest interim report.

so Mercuriadis (Through HSF’s long-time investment advisory, Hipgnosis song management) really Are you currently spending too much on HSF-owned catalogs?

We’ll address that question shortly. First, let’s discuss why it’s even more relevant than usual.

black stone announced today (June 3) HSF The board said it had raised its takeover bid for HSF only slightly. (Technically, the bidding party Lyra Bidco Ltd.(Uses funds managed by Blackstone)

Defeating a series of bids from competitors SameBlackstone says it will now pay. USD $1.31 Upon completion of the transaction, cash per share will be paid for HSF.

This is 1 cent per share higher than Blackstone’s previous bid ($1.30). This increases the total cash that Blackstone will pay for HSF’s assets. USD $1.584 billion – increase $12 million vs. Blackstone’s move $1.572 billion put.

Blackstone’s The latest cash offer suggests it is confident of gaining broad shareholder approval. Blackstone’s new model $1.584 billion The bid is being converted to a ‘plan’, which requires the following approvals: More than 75% HSF shareholders; Only previous acquisition bids required 55% approval.

Right then. Now that everything is clear, let’s get back to the what. Hipgnosis Song Fund Pay for the asset… and figure out if it’s worth it.

Considering debt

First things first: something new. USD $1.584 billion bid black stone (i.e. Market Accepted Valuation of HSF) represents the value of HSF. share stock price But it doesn’t tell the whole story corporate value — That is, the total value of the company’s assets.

The main reasons are as follows: corporate value (which we will calculate shortly) takes into account the liabilities of the HSF.

According to HSF most recent Interim Financial Reportingt, the total debt of the company is USD $674 million September 30, 2023. These are the most recent debt figures we have. HSF.

now. To calculate the corporate value of a listed company using the most typical wayThe following equation must be followed:

• Market capitalization + total debt – cash = enterprise value (EV)

however Blackstone’s The publicly announced bids (approved by the HSF Board of Directors) are now available for the following adjustments:

• Blackstone Bid Equity Value + Total Debt – Cash = EV

The first part of this equation is very easy.

• $1.584 billion (Recent Blackstone Cash Bid Price) + $674 million (HSF’s total debt as of September 30) = $2.258 billion

All you have to do is subtract from here. HSF’s Cash Pile.

Again, the most up-to-date information on this topic comes from HSF’s latest interim report dated 30 September 2023. (In fact, this full EV calculation estimate is based on Blackstone’s latest bid and HSF Financial data as of September 30.)

So: As of September 30, HSF’s “cash and cash equivalents” are USD $34.3 million.

So let’s do this:

• $2.258 billion (HSF share price + debt) – $34 million (cash) = $2.224 billion

However, there is one more thing to consider before arriving at a viable EV figure.

In December following the most recent fiscal year, Hipgnosis Song Fund 20,000 songs, called “non-core assets,” were sold to a mystery party believed to be Kobalt Music Group.

the cash transaction It was worth about US$23 million.

Therefore, to get the most accurate EV possible, you need to subtract the proceeds from the sale of this portfolio from the running total.

• $2.224 billion (equity value plus debt minus cash) – $23 million (non-core sales) = $2.21 billion

What else did HSF pay?

so… Follow the best market tests for value. HSF’s assets (i.e. an actual acquisition bidding war), we USD $2.21 billion Corporate valuation for UK listed funds.

As a reminder, these numbers are based on standard EV metrics combined with: Blackstone’s Latest bids and most recently publicly released figures HSF For debt and cash.

What do you remember? HSF Have you paid for these assets in the first place?

According to the recent interim report, US$2.26 billion. (As of September 30, 2023, but takes into account the upcoming sale of non-core assets.)

As you can see, the amount is HSM The amount paid for an asset and the current enterprise value of that asset are approximately equal.

But there is one more adjustment to make.

To get as close as possible to your total catalog purchase cost: HSFWe need to immerse ourselves for a moment ‘Right to income’; or RTI.

This accounting practice is HSF It has caused controversy (especially Shot Tower Capitals Criticism method of HSM We used this to calculate the ‘pro forma return’ for HSF.

But that’s the only way to get to the fair Net RTI These are HSF’s total acquisition spending figures to date.

Conveniently, the table HSF’s Fiscal Year 2022 Annual Report Provides a model for calculation. ‘Pre-FY’ RTI It was for acquisition of companies from FY19 to FY22. (HSF has not made any material acquisitions since the end of FY22).

If you add up all the ‘pre-FY RTI’ amounts for the past few years, it’s roughly: US$59 million (see below).

If we remove this amount HSF Based on total catalog costs, we have arrived at new approximate figures for HSF’s total catalog net RTI spend. US$2.147 billion.

This in turn suggests that: HSF Today’s corporate value ($2.21 billion) is worth no less than the total the company has spent on acquisitions to date.

Your perspective on that fact will no doubt depend on where you are within (or outside) the music industry.

Some people would argue that there is a value difference between the two. HSF Current assets and their assets accumulated cost It should have been bigger in the period 2018-2024.

Hipgnosis song management One could argue that long-term investment is necessary, starting from HSF’s first prospectus in 2018. “Buy and hold” Even in a relatively high interest rate environment over the past two years, investor strategies have been driven by the true value of assets that have yet to blossom.

HSM could also argue that the value of its premium, evergreen music assets is now set for another surge. sonyWith the help of financial partners, They say they are considering it purchase queens catalogue ~$1 billion evaluation.

nevertheless, Blackstone’s recent US$1,584 The $1 billion cash bid number suggests something you don’t often hear in today’s hyper-competitive, M&A-obsessed music business.

Allegations of dramatic overspending Hipgnosis Song FundWhen I do the calculations, the sound sounds a little off.worldwide music business