Round Hill Music - Second Independent Valuation Report
13/04/2023 07:00
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RNS Number : 0302W Round Hill Music Royalty Fund Ltd 13 April 2023
13 April 2023
Round Hill Music Royalty Fund Limited
("Round Hill Music" or the "Company")
Second independent valuation report from FTI in line with
Citrin Cooperman's fair value assessment
Round Hill Music (LSE: RHM), which invests in evergreen music catalogues with
proven longevity and revenue streams, is pleased to announce it has received a
second independent valuation report (the "FTI Report") on its portfolio of
music rights from FTI Consulting Inc ("FTI").
The FTI Report affirms the valuation as at 31 December 2022, prepared by the
Company's independent valuer, Citrin Cooperman. The FTI Report was
commissioned by the Board ahead of the publication of its full year results
for the year ended 31 December 2022, which are expected to be published later
this month, to provide an additional data point for the market on the fair
value of the Company's investments.
On 6 March 2023 the Company announced that, following receipt of an
independent valuation from Citrin Cooperman (as at 31 December 2022), its
Economic Net Asset Value per Ordinary Share was US$1.28 ("Economic
NAV") and its unaudited IFRS NAV per Ordinary Share was US$0.93 ("IFRS
NAV"). The Economic NAV included a c.US$43 million increase in the
valuation of the Company's portfolio to c.US$603 million (including its equity
interest in RH Carlin Holdings LLC ("Carlin interest")).
The FTI Report provides two valuations. One is based on a transaction using
financing with traditional bank debt and one financed through an asset backed
securitisation ("ABS") structure. The discount rate that results from the
Weighted Average Cost of Capital ("WACC") analysis in the bank debt valuation
is 9.25% and the discount rate that results from the WACC analysis of the ABS
valuation is 8.25%. This compares to a discount rate of 8.5% used by Citrin
Cooperman. FTI applies a low, mid and high range of valuations. In its mid
case, FTI forecasts that overall portfolio cash flow will grow by 7%, 6% and
5% in 2023, 2024 and 2025, respectively. The FTI growth rates compare to
Citrin Cooperman's base case assumption of 5% for all income types (excluding
a 2% assumption for 'Other' income) in 2023, 2024 and 2025, respectively.
While FTI assumes a higher discount rate, their elevated growth assumptions
largely offset any negative impact. Accordingly, FTI's valuation for the
traditional bank debt approach results in an overall variance of just (3)%
compared to the Citrin Cooperman valuation.
The results of the FTI Report are set out below and are based on the mid case
valuation.
FTI Bank Financing Structure Valuation (as at 31 December 2022):
Citrin Cooperman Valuation Implied Multiple FTI Implied Multiple % increase/ (decrease)
Company's portfolio (excluding Carlin interest) US$534,939,570 19.4x US$523,490,000 19.0x (2)%
Carlin interest US$67,875,045 20.1x US$63,312,040 18.8x (7)%
Overall US$602,814,615 US$586,802,040 (3)%
Discount Rate Applied 8.5% 9.25% 8.8%
FTI ABS Financing Structure Valuation (as at 31 December 2022):
Citrin Cooperman Valuation Implied Multiple FTI Implied Multiple % increase/ (decrease)
Company' portfolio (excluding Carlin interest) US$534,939,570 19.4x US$605,641,000 22.0x 13%
Carlin interest US$67,875,045 20.1x US$72,744,400 21.6x 7%
Overall US$602,814,615 US$678,385,400 13%
Discount Rate Applied 8.5% 8.25% (3)%
FTI's comprehensive valuation methodology is based on a combination of the
following:
· Analysis of by-track, by-source of income historical performance
data;
· Identification of non-recurring historical royalty collections;
· Analysis of forecasted revenue for new song releases and sync
placements;
· Analysis of trends among vintage, genre and territory cohorts;
· Analysis of administrative contract attrition trends, statutory
reversions or other potential loss of income events, as necessary; and
· FTI's knowledge of ongoing industry trends, including the impact
of recent legislative and/or regulatory developments.
FTI benchmarks to the observed long-term trends for similar music publishing
and recorded music catalogues, as well as the broader music industry, and
prepares an independent range of valuation indications.
Round Hill Music also provides additional cross-reference of the implied
multiples to recent transactions using the Shot Tower M&A multiples
database. Shot Tower Capital ("Shot Tower") is an investment banking boutique
that provides advisory and capital raising services in the media sector with a
specific focus on the music industry, where it has completed more transactions
globally than any other investment banking firm.
Shot Tower maintains a database of music publishing catalogue transactions and
the average multiple of Net Publisher Share ("NPS") paid in 2022 was 19.4x for
catalogues of high quality, iconic copyrights, which are the focus of Round
Hill Music's investment strategy. The 19.4x multiple is the raw average
including all deals in Shot Tower's database for both iconic and non-iconic
copyrights (for every deal greater than US$20 million). This is in line with
the implied multiples derived from the valuations provided to the Company by
both Citrin Cooperman and FTI.
Commenting on the FTI Report, Josh Gruss, CEO of Round Hill Music LP, the
Company's investment manager, said:
"The independent valuation that we have received from FTI Consulting supports
our strong view that the Round Hill Music portfolio is significantly
undervalued by the market and therefore offers considerable upside potential,
as reflected in the organic growth that has been delivered since IPO.
"Round Hill Music LP is a pioneer in music rights investment, having been one
of the first to identify the incredible opportunity that music offers almost
15 years ago. Over that time, we have built a passionate in-house team of over
70 people with specialist knowledge and expertise in managing music rights.
With its backing, the Round Hill Music collection has been carefully assembled
with an eye on iconic music with proven playing power, commercial appeal and
the capacity to deliver higher revenue growth through the multiplicity of
opportunities across traditional and expanding digital landscapes."
FTI Consulting Inc is a publicly traded business advisory firm with 6,400
employees worldwide that has a deep music specialisation. It performs
valuation services for many of the music industry players and is commonly
engaged in support of music securitisation transactions to provide independent
financial forecasts and valuations for underlying music catalogue assets. In
addition to the forecast and valuation services, FTI is also asked to provide
additional support services to the underwriter, ratings agency and/or
investors, as required.
FOR FURTHER INFORMATION
Round Hill Music LP
Josh Gruss, Founder and CEO Via Fourth Pillar below
Steve Clark, COO
Cenkos
Sales:
Justin Zawoda-Martin +44 20 7397 1923
Daniel Balabanoff +44 20 7397 1909
Andrew Worne +44 20 7397 1912
Corporate:
James King +44 20 7397 1913
Will Talkington +44 20 7397 1910
Fourth Pillar (Financial PR)
Claire Turvey +44 7850 548 198 / claire@thefourthpillar.co.uk
Lynne Best +44 7763 619709 / lynne@thefourthpillar.co.uk
Tomas Nevrkla +44 7963 548865 / tomas@thefourthpillar.co.uk
JTC
Mariana Enevoldsen +44 1481 702 485
About Round Hill Music Royalty Fund Limited
Round Hill Music Royalty Fund invests in high quality, evergreen music
catalogues that have proven longevity and revenue streams, with the aim of
providing investors with an attractive level of regular and growing income and
capital returns, underpinned by the positive structural drivers of the global
music industry.
The portfolio is diversified by income stream and music genre, with value
created through the proactive and careful management and commercialisation of
the repertoire through synchronisation (placement in films, television series
and brand campaigns); licensing; data cleaning; and distribution (including
across platforms such as Amazon Music, Apple Music, Deezer, and Spotify).
Its 51 catalogues, totalling over 120,000 songs, include music performed by
artists such as Alice in Chains, Bonnie Tyler, Bruno Mars, Céline Dion, Lady
A, Louis Armstrong, The Offspring, The Supremes, Whitesnake and Wilson
Pickett.
The portfolio of rights includes copyright interests in a musical composition
or song (which can be the writer's share, publisher's share and/or performance
rights), the rights to the recording of a musical composition or song (the
master recording rights), as well as music rights and assets that meet the
Company's investment strategy and objectives. The Company is a non-cellular
Guernsey company.
A playlist of RHM's top 50 earners can be listened to on Spotify here
(https://open.spotify.com/playlist/4P46C6opRHt0reXwyy7dRt?si=ad5e135307ec4a14&nd=1)
. We recommend it served loud.
About Round Hill Music LP (the Investment Manager)
Founded in 2010, Round Hill Music LP is a fully integrated owner and operator
of music copyright properties. It currently manages 150+ catalogues, totalling
330,000+ songs with a combined value of circa US$1.2 billion.
With over 70 employees located in the major music and entertainment markets of
Nashville, New York, Los Angeles and London, Round Hill Music LP has an
experienced management and investment team with an established reputation and
extensive expertise in the music and finance industries.
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