Final 12 months, 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 informed you to “count on extra M&A exercise from UMG in Asia to observe”.
Okay, that wasn’t the boldest prediction we’ll ever make. However, nicely, we weren’t unsuitable.
UMG has now confirmed that it not too long ago 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 price UMG roughly USD $18 million, with a possible further bonus price 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 greater story here’s what’s going to return subsequent.
Talking final Tuesday (September 17) in London at UMG’s Capital Markets Day (CMD), a handful of senior Common execs targeted 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 acquired their dues, together with Nigeria – the place UMG acquired a majority stake in Mavin Data final 12 months – plus Vietnam, Indonesia, and Thailand.
“The M&A that we’re taking a look at 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 through Virgin Music Group and, lastly, M&A.
It was defined that this M&A exercise (of music firms in rising territories) can be achieved through money from UMG’s personal stability sheet, in distinction to catalog acquisitions in established streaming markets just like the US. (These US-catalog-type offers, defined Grainge, can be executed through Chord Music, by which UMG is a minority companion alongside majority proprietor Dundee Companions.)
“The M&A that we’re taking a look at 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 can be alternatives to purchase them over the course of time”.
“The fact is,” mentioned Muir, “we will, over time, via M&A, improve 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 nicely!” 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 may be nonetheless loads of smaller-sized M&A chance available in fast-growing markets which are dominated by native repertoire.)
“By means of m&a [we can] improve 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 can be alternatives to purchase them over the course of time.”
Boyd Muir, Common Music Group, talking final week
Adam Granite, EVP of Market Improvement, 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 usually about ‘excessive potential’ markets, Granite famous: “A digital-first nature, lack of legacy methods and processes, and decrease price construction means [these markets] will be very worthwhile, particularly when the repertoire can discover audiences in increased ARPU markets.
“Provided that, our investments right here ought to stay margin-accretive for [UMG] total.”
Granite then turned his consideration to a few fast-growing markets particularly, 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 mentioned: “Indonesia is a considerably populous nation with roughly 275 million individuals… after solely actually starting to spend money on 2015… [UMG is] now within the main place out there.”
He famous that UMG’s revenues in Indonesia had grown eightfold since that 2015 funding, with a 25-times enlargement in EBITDA.
Granite then moved on to Thailand, calling it the “fastest-growing market in Southeast Asia”. Since 2018, he mentioned, UMG had elevated its market-share within the territory by 50% via “each native A&R [and] via M&A”.
He famous that UMG expects that “after just one 12 months of integration” into Common’s methods, the ~$70 million value paid for RS Group’s catalog will turn out 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 monitor to turn out to be a market chief” in Thailand.
Of Vietnam, Granite mentioned: “We didn’t have an area launch there till 2020 however right this moment we now have nearly 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 movement, earlier than investing actions, over the subsequent 4 years.
He additionally confirmed that UMG has dedicated to paying shareholders a dividend price 50% of its adjusted internet revenue annually. That’s a system set in stone through an current tripartite settlement between UMG and two of its largest shareholders: Vivendi/Bolloré Group plus a (two-part) Tencent-led consortium.
To present 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 observe 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). Taking into account Muir’s feedback, 50% of that internet revenue may 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 wager that — as long as UMG’s revenue doesn’t shrink sooner or later in comparison with FY 2023 — it should comfortably have a number of a whole lot of thousands and thousands of {dollars} in new free money per 12 months 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 earnings.)
“We’re extraordinarily snug and assured that, post-dividend, post-organic development in these [‘high-potential’] markets, we will make investments, we will purchase, and we will actually construct an awesome 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 mentioned: “We’ve acquired a major dedication to pay… dividends [at 50% of adjusted net profit].
“The place we’re right this moment is that in our view, for the expansion we see forward, we actually needs to be investing our surplus money into the expansion that’s constructing [with the] Virgin Music Group enterprise [and] the high-potential markets.
“It might be remiss of us to not really again the chance by [not] investing our surplus money into that.”
Added Grainge: “We now have to be real looking on what money we want, and the place we want it.
“We’re extraordinarily snug and assured that, post-dividend, post-organic development in these [‘high-potential’] markets, we will make investments, we will purchase, and we will actually construct an awesome firm for the subsequent 10, 15, 20 years and past.”Music Enterprise Worldwide
