Just days after the $2.6 billion acquisition of Warner Music Group closed, a key member of the buyout team valued the music company's assets at healthy $3.5 billion.

NEW YORK--Just days after the $2.6 billion acquisition of Warner Music Group closed, a key member of the buyout team valued the music company's assets at healthy $3.5 billion.

Scott Sperling, managing director of Thomas H. Lee Partners, made that assessment in a keynote address last Thursday at the 3rd annual Billboard Music & Money Symposium, held at the St. Regis Hotel in New York.

Despite the problems facing the business in recent years, Sperling says things have begun turning around recently for the music industry, and now people are complimenting his firm for "making a pretty smart buy."

Sperling note that the firm was attracted to WMG by its strong asset coverage for its investment. The firm "saw significant asset valuation" for the music-publishing unit, which separately could be valued at $2 billion-plus. The recorded-music business is valued at $1.5 billion-plus, according to Sperling.

He praised the company's "deep existing management team" while citing the important additions of Edgar Bronfman Jr. as chairman and CEO and Lyor Cohen as chairman/CEO of U.S. Recorded Music.

IPO ON HORIZON

In an interview with after the speech, Sperling stressed that Thomas H. Lee usually holds onto assets and exit strategies. "When we look at a business, we usually have a five-year horizon," he says.

In this case, if at that time the music industry's "uncertainties have been resolved," and if it appeared to be the right move, taking the company public would be an option to consider, Sperling added.

Sperling noted that one of those uncertainties, piracy, has been negating the industry's growth for the past three years. Still, despite the music industry's problems, the "cashflow stream is very robust" for catalog and music-publishing assets, and music itself still has "strong fundamental demand."

What's more, the industry will benefit from other new revenue streams, including the cell-phone and video game market.

Sperling noted that digital photography was the latest driver for the cellphone market. Digital music, he said, could be the next growth vehicle.