So you could easily be forgiven for missing the monumental importance – in music biz-relative terms, anyway – of Primary Wave‘s big announcement from last week.
If you’re not fussed about detail, this headline is all you need to know: Financial giant Brookfield has struck a $2 billion deal with Primary Wave, the acquisitive home to catalogs from legends like Bob Marley, Ray Charles, Whitney Houston, Stevie Nicks, Prince, Burt Bacharach and many more.
If you are fussed about detail, then: (a) You’re MBW’s kinda person and (b) We’re gonna have a go at breaking it down for you.
Before Brookfield came along, Primary Wave was an investment manager that looked after three song-owning funds with various financial backers:
Fund 1 was born in 2016 with approximately $300 million behind it (and investors including BlackRock);
Fund 2 was born in 2019 with $500 million behind it;
And Fund 3 was born in 2021. MBW’s sources suggest it was backed with $800 million in capital. (The launch of Fund 3 .coincided with a $375 million investment into Primary Wave by Oaktree Capital.)
Now, Brookfield has committed $1.7 billion into a new “permanent capital vehicle” – essentially a fourth fund – in which Primary Wave itself is a minority owner.
That vehicle has already spent an initial $700 million acquiring some rights from Fund 1 and Fund 2, with some of those funds’ investors cashing out.
This has left somewhere north of $1 billion in unspent Brookfield cash sitting in the new “permanent capital vehicle”, ready to be deployed.
That’s just as well: Primary Wave says it has $600 million in agreed-but-not-yet-closed deals that it expects to complete by the end of 2022. (The firm says it’s already done $300 million-worth this year.)
Now, the last piece of the puzzle: Brookfield has additionally acquired a minority stake in Primary Wave (as in, the investment manager that looks after the four ‘funds’).
Brookfield appears to have spent somewhere around $300 million on this minority interest, which is why, when you add this figure to the aforementioned $1.7 billion capital commitment, Brookfield has struck a “$2 billion deal” with Primary Wave.
Oh, final, final thing: Global talent agency Creative Artists Agency (CAA) has also acquired a minority interest in Primary Wave – as in, the investment manager – for an undisclosed fee.
[Side-note: Eye-popping dollar signs aside, this CAA involvement might actually prove to be the most interesting thing about this whole deal announcement. Primary Wave prides itself on being able to amplify an artist/songwriter’s brand far beyond syncs and traditional marketing, which is why it is a long-running pioneer of buying ‘name & likeness’ rights from talent. Witness the upcoming Whitney Houston biopic, I Wanna Dance With Somebody, for evidence. Primary Wave says it believes CAA’s new involvement in its company will deliver “content-creation clout unheard of in the music publishing space”.]
Okay! End of lecture. Any other questions?
Well, yes, we had a few. So hours after the deal was announced we called up Larry Mestel, founder and CEO of Primary Wave Music, to get the bigger picture.
Here’s what we learned.
1) Permanent means permanent
For those of us still getting to grips with lingo from the financial world, the phrase “permanent capital vehicle” might seem a little perplexing; after all, aren’t “permanent” capital vehicles just… companies?
In essence, yes. Explains Mestel: “It’s designed to be a permanent capital vehicle – to never be sold. It’s more like a regular corporation in that sense.”
In an interview with the Wall Street Journal announcing the Brookfield deal last week, Mestel was quoted as saying: “[This deal] means there isn’t any good acquisition that we couldn’t do in the music business. We’re not limited by size or opportunity.”
“If there are deals that make sense, and we stick to our vision, we will not run out of capital.”
But – thought experiment – what if an amazing multi-billion dollar music deal came along? Surely with its current $1 billion-ish pile of Brookfield cash, Primary Wave would be counted out?
Don’t be so sure.
“We have an unlimited supply of capital to the extent that we find good deals,” says Mestel. “So if there are deals that make sense, and we stick to our vision, we will not run out of capital.”
2) There’s a reason, says Mestel, that Primary Wave is changing the narrative around music M&A
If you’re a watcher of music’s once-frenzied acquisitions marketplace, you’ll know things have gotten a bit… gloomy of late.
Macroeconomic factors – not least endlessly rising interest rates – are putting pressure on acquirers with debt, and naturally driving down the multiples they’re willing to pay.
Rumors abound of smaller players in the M&A marketplace suddenly seeking buyers, while ruing the high multiples they paid for assets that, in hindsight, aren’t quite as premium as they first thought.
Meanwhile, the financial media is asking tough questions of bigger players. And every other music biz lunch you attend, someone wants to proclaim that the “era of cheap money is over!”
And then Primary Wave comes along with a $2 billion deal and a mountain of new cash. So how’d it manage that?
“When you buy the right music assets and you truly add value to those assets, you keep your partners happy,” smiles Mestel. “There is typically a good outcome that comes from that strategy.”
“We’ve had a successful growth strategy in place for 16 years now.”
Mestel alleges that some of his competitors simply haven’t followed a similar path: “They’ve over-leveraged themselves without having a strategy to grow their income stream”.
Continues Mestel: “We’ve had a successful growth strategy in place for 16 years now – enhancing value not only for us but for our artistic partners as well [Primary Wave often strikes deals where the songwriter/artist/estate involved keeps a minority interest].
“Primary Wave has a history of being friendly to artists, plus artists know we close deals – we don’t walk away from signed letters of intent.”
He adds: “When you look at the enhancement of streaming for iconic artists [Primary Wave has achieved], when you look at the marketing and then the podcasts, documentaries, brand opportunities that we’ve implemented, you understand why our revenue has grown dramatically.”
Mestel is clear that Primary Wave does not want the until-recently-energized music M&A market to “fall apart”. But if some financialized music portfolios do end up hitting the auction block, he says, don’t assume it’s only the three major music companies who’ll be capable of “scooping up all the pieces”.
Adds Mestel: “If this market does go into recession, we are going to have an enormous amount of capital and we will be very discerning about what we buy.”
3) There are plenty of deals left in the market
One of the most striking things from Primary Wave’s announcement last week was that it has $600 million of acquisition deals currently in play that it expects to close by the end of 2022.
This rather flies in the face of the idea that there is a drastic cool-down in catalog acquisition activity in the music business.
“We’ve actually never been busier. We have an enormous amount of deal flow in the pipeline.”
“We’ve actually never been busier,” says Mestel of Primary Wave’s current M&A activity. “We have an enormous amount of deal flow in the pipeline.”
Part of the reason for Primary Wave’s deal-making frequency, argues Mestel, is his company’s reputation amongst the creative community – partly based on its prowess for storytelling and understanding artist brands.
That’s something he believes will be crystallized by the new Whitney Houston movie, on which Mestel is a co-producer alongside the likes of Clive Davis.
“It’s going to be incredible,” says Mestel of the film.
“I think as a result you’re going to see a very significant jump in Whitney’s brand, in streams of her catalog in general – and in people’s introduction and re-introduction to a legend.”Music Business Worldwide
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