Final yr, Common Music Group acquired a 70% stake within the recorded music catalog of Thailand’s RS Group for round USD $45 million (plus a possible ~$5m in bonus funds). On the time, MBW advised you to “count on extra M&A exercise from UMG in Asia to comply with”.
Okay, that wasn’t the boldest prediction we’ll ever make. However, properly, we weren’t incorrect.
UMG has now confirmed that it lately accomplished the acquisition of the remaining 30% of RS Group’s catalog, taking full possession of the recordings portfolio.
MBW has additional confirmed that this extra transaction value UMG roughly USD $18 million, with a possible further bonus payment of roughly USD $2 million.
In different phrases, UMG simply accomplished the acquisition of Thailand’s second-largest recordings catalog for a complete sum of roughly USD $65-$70 million.
Fascinating. However the larger story here’s what’s going to come back subsequent.
Talking final Tuesday (September 17) in London at UMG’s Capital Markets Day (CMD), a handful of senior Common execs centered on the corporate’s future acquisitions technique in “high-potential” markets, the place streaming monetization is predicted to blow up within the years forward.
The territories talked about as “high-potential” included massive music markets like China and India, however different markets additionally received their dues, together with Nigeria – the place UMG acquired a majority stake in Mavin Data final yr – plus Vietnam, Indonesia, and Thailand.
“The M&A that we’re doing strategically is in these high-growth-potential markets.”
Sir Lucian Grainge, UMG, talking final week
On the CMD occasion, Sir Lucian Grainge, CEO and Chairman of UMG, described Common’s “triple-prong” technique in these markets within the years forward, spanning three areas: native A&R on the bottom, plus companies for native entrepreneurs by way of Virgin Music Group and, lastly, M&A.
It was defined that this M&A exercise (of music firms in rising territories) can be achieved by way of money from UMG’s personal steadiness sheet, in distinction to catalog acquisitions in established streaming markets just like the US. (These US-catalog-type offers, defined Grainge, can be executed by way of Chord Music, wherein UMG is a minority accomplice alongside majority proprietor Dundee Companions.)
“The M&A that we’re doing strategically is in these high-growth-potential markets,” confirmed Grainge, noting: “We’re speaking about [relatively] small markets and small firms, however with entrepreneurs which have [to date] had the complete run of the place – and that’s the place Virgin is available in.”
Boyd Muir, UMG’s EVP/CFO, expanded on this level, noting that Virgin Music Group would assist UMG “carry entrepreneurs and labels in our ecosystem” inside these markets “after which as soon as they’re inside, issues are likely to occur; there might be alternatives to purchase them over the course of time”.
“The truth is,” stated Muir, “we will, over time, by way of M&A, enhance our presence in these markets, and that we absolutely intend to do.”
(Grainge later quipped: “Sadly, I can’t purchase Sony; if I might then I’d purchase Warner as properly!” His level: in Grainge’s eyes, one-off transformative acquisitions like that which noticed UMG purchase EMI Music in 2012 are actually skinny on the bottom, however there’s nonetheless loads of smaller-sized M&A chance available in fast-growing markets which might be dominated by native repertoire.)
“By means of m&a [we can] enhance our presence in these markets, and that we absolutely intend to do… [via Virgin Music Group we can] carry entrepreneurs and labels into our ecosystem… then as soon as they’re inside, issues are likely to occur – there might be alternatives to purchase them over the course of time.”
Boyd Muir, Common Music Group, talking final week
Adam Granite, EVP of Market Growth, mentioned Common’s technique in ‘excessive potential markets’ in additional element, revealing that UMG has simply opened its fifth workplace in Better China, in Shenzhen. That new locale joins UMG places of work in Hong Kong, Taiwan, Beijing, and Shanghai in China, which was the world’s second-largest digital music market in 2023.
Talking typically about ‘excessive potential’ markets, Granite famous: “A digital-first nature, lack of legacy programs and processes, and decrease value construction means [these markets] will be very worthwhile, particularly when the repertoire can discover audiences in increased ARPU markets.
“On condition that, our investments right here ought to stay margin-accretive for [UMG] total.”
Granite then turned his consideration to 3 fast-growing markets specifically, all in Southeast Asia: Indonesia, Vietnam, and Thailand. (Granite confirmed UMG’s acquisition of the remaining 30% of RS Group’s catalog within the latter territory.)
Of Indonesia, Granite stated: “Indonesia is a considerably populous nation with roughly 275 million folks… after solely actually starting to spend money on 2015… [UMG is] now within the main place available in the market.”
He famous that UMG’s revenues in Indonesia had grown eightfold since that 2015 funding, with a 25-times growth in EBITDA.
Granite then moved on to Thailand, calling it the “fastest-growing market in Southeast Asia”. Since 2018, he stated, UMG had elevated its market-share within the territory by 50% by way of “each native A&R [and] by way of M&A”.
He famous that UMG expects that “after just one yr of integration” into Common’s programs, the ~$70 million value paid for RS Group’s catalog will grow to be “an efficient 11.5-times of EBITDA [multiple] in a market that’s rising quickly”.
By means of this and “another offers on the horizon”, claimed Granite, UMG is now “on observe to grow to be a market chief” in Thailand.
Of Vietnam, Granite stated: “We didn’t have an area launch there till 2020 however at present now we have virtually 25% of the Spotify prime 200 there, being pushed primarily by our native language A&R and our distribution companions.”
So how will UMG really pay for its future M&A offers in ‘high-potential’ markets?
Boyd Muir defined finally week’s CMD occasion that UMG expects to convert 60% to 70% of its adjusted annual EBITDA into free money circulate, earlier than investing actions, over the subsequent 4 years.
He additionally confirmed that UMG has dedicated to paying shareholders a dividend value 50% of its adjusted internet revenue annually. That’s a system set in stone by way of an present tripartite settlement between UMG and two of its largest shareholders: Vivendi/Bolloré Group plus a (two-part) Tencent-led consortium.
To offer an instance of what all which may imply, let’s make two fast calculations:
- In FY 2023, Common Music Group posted an adjusted annual EBITDA of EUR €2.369 billion (USD $2.56bn). If we comply with Muir’s (future-looking) system of 60-70% of that adjusted EBITDA changing into free money, it might depart UMG with an annual free money pile of roughly USD $1.66 billion;
- Additionally in FY 2023, UMG posted an adjusted annual internet revenue of EUR €1.595 billion (USD $1.73bn). Allowing for Muir’s feedback, 50% of that internet revenue could have been put aside for shareholder dividends – i.e. roughly USD $865 million.
Taking a look at these two calculations, then, it appears a good guess that — as long as UMG’s revenue doesn’t shrink sooner or later in comparison with FY 2023 — it can comfortably have a number of a whole bunch of thousands and thousands of {dollars} in new free money per yr for potential M&A investments in ‘high-potential markets’.
(Once more, that’s after segmenting off the required quantity for dividends at 50% of adjusted internet income.)
“We’re extraordinarily snug and assured that, post-dividend, post-organic progress in these [‘high-potential’] markets, we will make investments, we will purchase, and we will actually construct an ideal firm.”
Sir Lucian Grainge, Common Music Group
Muir particularly tackled UMG’s willingness to spend its post-dividend money in ‘high-potential’ markets on the CMD occasion final week.
He stated: “We’ve received a big dedication to pay… dividends [at 50% of adjusted net profit].
“The place we’re at present is that in our view, for the expansion we see forward, we actually ought to be investing our surplus money into the expansion that’s constructing [with the] Virgin Music Group enterprise [and] the high-potential markets.
“It could be remiss of us to not really again the chance by [not] investing our surplus money into that.”
Added Grainge: “We’ve got to be practical on what money we want, and the place we want it.
“We’re extraordinarily snug and assured that, post-dividend, post-organic progress in these [‘high-potential’] markets, we will make investments, we will purchase, and we will actually construct an ideal firm for the subsequent 10, 15, 20 years and past.”Music Enterprise Worldwide
