Finally, in 2024, the Performing Rights Association found out what kind of valuations they could get when they went public. As the end of the year approaches, a select group of private equity acquirers are launching an attack on another performing rights group, SESAC, sources said.
Deals such as New Mountain Capital’s acquisition of BMI in February and Hellman & Friedman’s signing of a letter of intent to replace Taxes Pacific Group as the majority shareholder in global music rights in September have valued GMR at $3.3 billion, these sources said. USD, these transactions became a catalyst for GMR.
As a result, Blackstone is attracting inbound interest from a group of private equity firms that had unsuccessfully bid for GMR, according to a person familiar with the matter.
A music asset investor said that many private equity companies paid attention to GMR and “were all shocked by the final valuation.” “These companies have a real interest in music because the music assets are performing well.” In fact, some sources suggest that SESAC has been an excellent performer for Blackstone. However, as an investment firm representing institutional clients, Blackstone has a fiduciary duty to maximize returns on its investments. As a result, Blackstone, with the help of investment bank Moelis & Co. and Morgan Stanley, has selectively and informally purchased PRO and its subsidiaries to a targeted group of private equity firms while, to date, not Reach out to potential strategic buyers. “You can’t blame Blackstone for testing to see how much the market will pay for SESAC,” said one music asset buyer.
Executives at SESAC, Blackstone, Moelis and Morgan Stanley either declined to comment or did not respond to requests for comment.
Blackstone acquired SESAC in 2017 for $1.125 billion and has since invested in the company as a PRO, led by the Chairman John Josephsonhas been making follow-on add-on acquisitions to complement its core business. During Josephson’s tenure, SESAC acquired the Harry Fox Agency and Audiam, as well as the previous acquisitions of RumbleFish and Christian Copyright Licensing International. What’s more, in 2021, Blackstone acquired Hasbro’s music assets, including MNRK Records and Audio Network Production Music, which were added to SESAC’s portfolio. (Sources say the news network is included among the SESAC assets being studied, but advertising billboard It could not be determined whether MNRK was also included in any potential deal.
In the process, Blackstone took on about $1 billion in debt to SESAC through a series of asset-backed bond issuances, the latest of which was a $180 million securitization earlier this year. On February 8, Kroll Bond Rating Agency (KBRA) stated that the proceeds from the bond issuance will be used to “distribute to equity investors” as well as pay certain transaction fees and be deposited into certain trading accounts.
According to the credit rating report, SESAC’s revenue in 2024 (presumably the fiscal year ending January 31, 2024) will be $388.6 million. It may end on January 31, 2025. Income from the Harry Fox Agency (HFA), Stephen Arnold Group (SAG) and a number of other smaller entities is not included in the collateral. Based on SESAC bond issuance revenue data for 2022 and 2019 given in early SESAC bond rating documents published by agencies such as Morningstar and Kroll Bond Ratings, HFA and SGA have consistently had combined revenue of $20 million to $25 million, as you can imagine , by the end of its most recent fiscal year, SESAC’s revenue had exceeded $400 million. Sources said these assets are included in the assets being purchased.
A 2019 Morningstar analysis found that SESAC has grown at an annual rate of 12.9% since 1994. While the report did not cite revenue from earlier years, other SESAC-related documents obtained by SESAC. advertising billboard Data over the years show SESAC’s revenue grew from $9 million in 1994 to about $57 million in 2004, then to about $206 million in 2014 and about $275 million in 2018.
While it’s unclear at what price Blackstone will sell, sources said that just last year, Blackstone and SESAC executives said PRO and its subsidiaries were valued at about $2 billion to $2.5 billion. However, according to the Kroll report, at that time its securitization net cash flow was $118 million and collections (revenue) were approximately $318 million, while the latest financial data shows securitization net cash flow of $147 million and revenue of $388.6 billion dollars. This represents a 24.6% increase in securitization net cash flow over the previous year and a nearly 22.2% increase in collections/revenue. On top of this growth, the BMI and GMR deals further boosted SESAC’s implied valuation, signaling PRO’s appeal to private equity, sources said.
Unlike BMI and ASCAP, SESAC and GMR will not be hampered by consent orders, which is also a positive for private equity. Another trading point is that SESAC has a diversified revenue base. According to the Kroll report, as of the end of fiscal 2024, 37.2% of SESAC’s annual revenue comes from general licensing, 21.7% from digital licensing, 18.9% from television, 9.7% from audio networks, 6.4% from radio, and 0.7% from radio. 5.5% of other efforts.
On the other hand, this percentage breakthrough shows that even with the company’s efforts to diversify into related music industry functions, its core business is still SESAC’s performance rights licensing, a boutique strategy through inviting songwriters to join as members. to achieve. Through this strategy, it gained clients such as Bob Dylan, Adele and Neil Diamond.
One music industry source said another advantage suitors would find attractive was the astute management of SESAC under Josephson. “He was very effective there,” the source added.
Additionally, in an effort to increase profitability, SESAC has been quietly pruning songwriters who are unable to earn sufficient royalties from their catalog. According to Kroll, the number of songwriter and publisher affiliates (the former roughly making up the majority of the total) has dropped from 35,000 in 2019 to 15,000 last year.
Pricing will be critical to whether Blackstone will close a deal. However, if one chooses to retain ownership of SESAC, this will be weighed against the likely return on investment. In fact, Blackstone and its equity investors may have recouped a significant portion of their initial investment in SESAC. In addition to the aforementioned possible equity distribution in the February bond issue, Blackstone will likely pay investors early dividends out of profits from PRO during the eight years it has owned SESAC; possibly also from earlier bond issues. In addition to this, Blackstone provides itself with an annual management fee of $30 million, calculated as 16% of SESAC’s core retained funds, whichever is higher. (While the ratings agency doesn’t define core reserve collection, it’s likely equivalent to the publisher’s net share—what’s left after paying royalties to the songwriter and publisher.)
As for possible suitors, the only private equity firm that has come up in multiple conversations with music industry sources so far is TA Associates, a Boston-based private equity firm that said it has raised $650 million billion in funding. A closer look at the investment firm’s website reveals that it has invested in another music company: In 2022, it acquired TouchTunes, a digital jukebox network that delivers music to bars, clubs, restaurants and other social venues in North America and Europe . In addition, there is news that TA may have even paid attention to SESAC in the past; SESAC has been put up for sale multiple times over the years, so it has also had some other institutional investors in the past, including Rizvi Traverse; previously, Oct-Ziff Capital Management Group was the A minority shareholder in a company.
Representatives of TA Associates could not be reached for comment during the year-end holiday period.
Moelis is one of the banks said to be acquiring SESAC, which has made its mark in other areas of the music industry in 2024. , to assist it in finding a replacement investor for Texas Pacific Group. Morgan Stanley has experience in the music industry, including investing in Kobalt for music acquisitions and other transactions.
Additional reporting by Elizabeth Dilts Marshall.
