The Deal: Behind Warner Music & Providence's New $650M Investment Platform

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The who, what, why and more about Warner Music Group's new investment platform with Providence Equity Partners.

What? Coming to the table with $650 million in funding, Warner Music Group, Providence Equity Partners and Influence Media Partners -- a firm launched last year -- will invest in music publishing and recorded master catalogs via Tempo Music Investments.

Who? Providence Equity Partners is the main player behind this deal and it owns all the assets through its Tempo Music Investments entity. They are the equity owners of the already acquired assets: the music publishing catalogs of Jeff Bhasker, Shane McAnally and Ben Rector. But the ownership of Tempo is not so clear. One source says its owned by Providence Equity, another source says that both Providence Equity and WMG have "economic" stakes in Tempo. In any event, Tempo acquired the publishing assets from Influence Media Partners, which originally was known as the Entertainment Investment Industries Vehicle, or EIIV FUND, and bought those catalogs with bridge financing from Morgan Stanley back in 2018. Influence Media Partners will now manage those assets and also any other acquisitions made on behalf of Tempo Music. While Influence Media Partners is not currently an equity player in these assets, it has the opportunity to take a stake on a going forward basis on subsequent deals, sources tell Billboard. Tempo Music Investments is headed up by CEO Sherrese Clarke Soares.

What about WMG? WMG is also not currently an equity player in this deal and is serving as a strategic partner and service provider to the initiative, meaning it will provide administration services for the publishing assets and distribution and possibly marketing for whatever recorded master assets are eventually acquired. So before understanding the above some might ask: why does Access Industries' WMG need someone else to finance music assets acquisitions -- are they afraid to double down on music investments? Sure it's nice to borrow someone else's money to buy assets, but it's not as much fun when someone else is ultimately the equity owner. Instead, look at this deal as WMG aligning with a deep-pocketed player who might have become another competitor in bidding for assets.

This deal, as structured, allows WMG to build market share and pocket service fees, but it also provides an additional kicker payout based on asset appreciation and the ability to buy a minority stake when certain thresholds are met, sources say. Rather than let this deal walk over to one of the other majors or some other competitor, WMG is coming out just fine and it gets another deal-making entity in its strategic repertoire. Plus WMG still retains the opportunity to make any acquisition it wants, on its own, sources say.

Who knows who? Providence is already familiar with the Warner Music Group as it was previously an owner as part of a consortium of private equity firms that bought the company back in 2004 and which sold it to Access Industries in 2011. Meanwhile, Influence Media Partners and Tempo's Clarke Soares already worked together when she was at Morgan Stanley as managing directing and head of entertainment, media & sports structured solutions and put together the deal that provided the bridge financing for the initial EIIV music catalog acquisitions. Influence Media Partners includes co-managing partner Lynn Hazan, who was previously the CFO at Epic Records and RED before that, among other positions at Sony; and founder and co-managing partner Lylette Pizarro McLean, who has a long resume of music and entertainment marketing. Other players in the deal include WMG CEO of international and global commercial services Stu Bergen, who put the deal together from the WMG end; and Providence managing director Josh Empson, who is probably the main catalyst behind this arrangement. Providence didn't respond to a press inquiry by press time.

Why? With music valuations escalating at a rapid pace, has this new vehicle missed the boat? Nope, all boats are still rising. Although you might have thought Providence Equity -- which has music industry experience from its earlier investment -- should have jumped into the water sooner, let's not forget the firm was shrewd enough to make plenty of money when it cashed out on WMG. In fact, Providence Equity owned a stake in WMG during the worst part of the music industry tailspin, from 2004 through 2011, and then sold before the industry's upturn began in 2015 and kicked into high gear last year. Yet, music biz investors and their advisors argue there is still plenty of upside for new investors, with streaming far from hitting a saturation point globally, and driving music asset valuations upwards even as they are now at historic peaks.

Prime publishing assets are trading at more than 20 times multiples in net publishing share (NPS) multiples, or gross profit; while label assets are trading at 10 times earnings before interest, taxes, depreciation and amortization (EBITDA). Five years ago publishing assets were trading at 13 times NPS while 10 years ago labels were trading at four times EBITDA. As one dealmaker puts it, "It still remains a seller's market, with multiples going through the roof." A couple of the industry's top dealmakers separately speculated to Billboard there is between $2 billion to $5 billion in dry powder looking to buy music assets right now with very visible dealmakers like Primary Wave, Hipgnosis Songs Fund, Anthem Entertainment, Reservoir, Downtown and the majors all chasing deals, along with rumors of new investment vehicles still in the planning stages. In other words, look for pricing multiples to continue to escalate, while answers on whether music performances will back up the inflow of investments are still years out from materializing.


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