KKR has teamed up with BMG, one of the world’s largest music companies, to target large acquisitions of music labels and catalogues during a consolidation boom in the industry.
A return to growth in the music sector, driven by streaming, has led to the rise of acquisitive specialist funds including Hipgnosis and Primary Wave and has caught the attention of large financial players.
Many are scooping up lucrative back catalogues with more than $1bn of deals up for grabs over the coming year, according to Hartwig Masuch, chief executive of BMG.
KKR was an original majority shareholder in BMG when the music company was relaunched in 2008 but sold out to its partner Bertelsmann, the German media company, five years later. It re-entered the sector this year when it bought a majority stake in the catalogue of songwriter Ryan Tedder, but the BMG deal represents its biggest foray into music this decade.
Masuch said there had been a huge rise in the amount of deals over the past year as more musicians and songwriters have become “willing sellers” because of the rise in valuations and the lack of touring income.
He added that KKR would provide the financial firepower for BMG to compete for the best assets with “north of $1bn” worth of music catalogues likely to come on to the market in the coming year.
BMG had previously argued that valuations for assets had become too high but Masuch said that the growth in the industry meant that higher valuations were now justified. “In 2011, a 9 or 10 times multiple was more expensive than a 20 times multiple now.”
The deal is not structured as a direct investment by KKR in BMG or a joint venture. Instead, the two companies will jointly purchase music assets and share the proceeds in the future.
Revenue in the music sector has grown for six consecutive years with a 7.4 per cent rise last year to $21.6bn, according to the IFPI. Paid-for streaming has increased the value of music rights and given proven older songs a second life.
Masuch said a number of funds were now looking at music as an investable asset but KKR was a good partner for BMG given their history together.
Thomas Rabe, chief executive of Bertelsmann, said: “KKR was already the ideal partner and catalyst once before, following the re-establishment of our music subsidiary in 2008. [Since 2013], BMG has developed into one of the most successful music companies of the streaming age, and one of Bertelsmann’s three global content businesses. Now we will ignite the next stage with KKR.”
BMG has built an eclectic catalogue of artists since it sold its original business to Sony including a number of heritage acts including Texas, Iron Maiden and Boy George and new musicians such as Mabel, Alt-J and Thunder, an older band that charted this week.