Private Equity Firm Providence Wants Out of the Music Catalog Market

After billions worth of headline-grabbing acquisitions, one major player is pressing pause on the love ballad between private equity investors and song catalogs. PE firm Providence Equity is shopping around its Tempo Music Investments catalog for $600 million, the Financial…

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After billions worth of headline-grabbing acquisitions, one major player is pressing pause on the love ballad between private equity investors and song catalogs.

PE firm Providence Equity is shopping around its Tempo Music Investments catalog for $600 million, the Financial Times revealed Wednesday.

Please Don’t Stop the Music

Investors snapped up songwriting catalogs in recent years because the stable income from radio play, music sales, streaming, and licensing was music to their ears at a time of historically low interest rates. Social media amplified their earnings potential, as in the case of a massively popular TikTok clip in which a man set footage of himself skateboarding to Fleetwood Mac’s “Dreams.” The video struck a chord and brought the song back to the Billboard charts 49 years after its release.

Over $5 billion was spent on music rights acquisitions last year, according to Music Business Worldwide. New Jersey’s HarbourView Equity Partners launched with $1 billion in backing from Apollo Global Management to buy rights. In January, it nabbed the catalog of Latin pop star Luis Fonsi (the guy behind undeniable earworm “Despacito”). Popstar John Legend and legendarily hirsute Southern rockers ZZ Top sold their catalogs to private equity giant KKR and music publisher BMG. Bruce Springsteen’s catalog sold for $500 million, David Bowie’s for $250 million.

Given this, a sale of Providence’s Tempo, which would mark the first private equity exit from the song catalog business, raises concerns that inflation and interest rate hikes are catching up with the hype:

  • Two-year-old Tempo, which owns music by artists including Wiz Khalifa and Florida Georgia Line, is on the block at a price tag of $600 million, representing 20 times its annual income.
  • According to investors who spoke to the FT, the portfolio is more likely worth $400 million (rising prevailing rates depress the value of fixed-income-like instruments).

“When Tempo and Providence went in, interest rates were historically low, so all of their calculations around returns were based upon those rates,” Midia Research analyst Mark Mulligan told the FT.

I Feel Fine: Especially large firms like Blackstone, KKR, and Apollo — which put aside $3 billion for buying song copyrights last year — may be fine with the lower returns, since they are buying catalogs as cash-flow-generating alternatives to corporate bonds. How do the lower multiples sit with smaller firms? The answer, my friend, is blowin’ in the economic headwind.

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