As anticipated earlier this year by MBW, Hipgnosis Songs Fund (HSF), a UK-listed company, has announced a proposal to its shareholders on September 14. The proposal outlines the sale of 29 music catalogs from its portfolio to another Hipgnosis fund, Hipgnosis Songs Capital (HSC), a private fund backed by Blackstone. Both sides of this deal are represented by separate teams within their mutual investment management company, Hipgnosis Song Management (HSM).
HSF makes it clear in its announcement that one of its primary motivations for selling the 29 catalogs to HSC is to serve as a catalyst for a revaluation of its share price. This revaluation, as explained by Merck Mercuriadis, the founder of Hipgnosis, would be achieved by using the proceeds from the transaction to pay down $250 million of debt drawn from HSF’s revolving credit facility and acquiring $180 million of its own shares through a buy-back program.
The 29 catalogs proposed for sale include rights and income streams from notable songwriters like Poo Bear, Ari Levine, Joel Little, Shakira, Barry Manilow, and Rick James, among others.
The $440 million offer reflects a multiple of 18.3 times the historical Net Publisher Share (NPS) of the 29 catalogs and a 26% premium over the original cumulative acquisition price of these catalogs. It also represents a 51% premium over the value of these catalogs implied by Hipgnosis Songs Fund’s public market capitalization for the 30 days leading up to September 13.
From January 1, 2023, to the announcement date, these catalogs generated approximately $15.3 million.
If the proposed $440 million sale goes through, Hipgnosis Songs Fund will still own 81% of its existing portfolio by Fair Value, with a stronger focus on older song catalogs. The company intends to retain ownership of seven of its ten largest catalogs after the transaction.
Additionally, there’s another significant transaction in the works. Hipgnosis Songs Fund is proposing to sell a second portfolio of catalogs, this time to a third party on the private market, for $25 million. These catalogs represent a subset of the songs acquired in a $323 million deal from Kobalt Capital in 2020. However, this portfolio does not include the highest revenue-earning assets from that acquisition, such as songwriting rights from Steve Winwood, B-52’s, and Walter Afanasieff (co-writer of Mariah Carey’s “All I Want For Christmas Is You”).
Merck Mercuriadis explained that these non-core songs from the Kobalt Fund One acquisition involve ongoing accounting and approval obligations to thousands of songwriters, which is not the core business of Hipgnosis Song Management. Selling these non-core songs is expected to increase the revenue for each song by over 75%, from $1,990 to $3,500 per
