Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
KKR has hired Raine Group to evaluate options for its music assets after potential buyers expressed interest, four people familiar with the matter said, setting up a test of Wall Street’s appetite for song catalogues as higher interest rates weigh on valuations.
At the centre of the potential sale is a catalogue of 62,000 songs, including hits by Lorde and The Weeknd, which the private equity group acquired for $1.1bn in October 2021. At the time music valuations sat at historic highs, bolstered by low interest rates.
KKR, which was an early investor in music royalties, has not bought further music assets for at least a year, according to a person familiar with the matter. In 2021 the firm also struck a partnership with BMG, which had been set to buy $1bn of songs, but that arrangement had only resulted in “a handful” of deals — including ZZ Top and John Legend — this person said.
With interest rates close to zero during the pandemic, large investors including KKR, Blackstone, and Apollo poured billions of dollars into music. These Wall Street players began competing with traditional music companies for song copyrights, helping inflate prices. The gold-rush allowed stars like Stevie Nicks, Neil Young and Bruce Springsteen to cash out at frothy prices.
However, over the past year, music royalties have become less attractive to investors, who can now find higher returns from traditional fixed income investments such as bonds.
Music publishing valuations have declined 14 per cent from their peak in 2019, according to Shot Tower Capital, an investment bank that advises on music transactions.
Debt tied to music royalties — which has been hoovered up by the same investment groups — has also become less attractive as the Federal Reserve has lifted rates above 5 per cent.
KKR last year secured bonds backed by the catalogue that its “dislocation opportunities fund” and private credit business had purchased in 2021, pricing some of the debt with a yield below 4 per cent. The value of those bonds has slid as interest rates have climbed, with the debt trading this month at 92 cents on the dollar, according to market data collected by Finra.
KKR was an original majority shareholder in BMG when the music company was relaunched in 2008, but sold out to its partner Bertelsmann, the German media company, five years later. KKR re-entered the sector in 2021, initially buying a majority stake in the smaller catalogue of songwriter Ryan Tedder.
KKR co-financed its $1.1bn music catalogue deal later that year with Dundee Partners, the family office of Stephen Hendel, a former Goldman Sachs partner. At the time, the companies in a statement described the deal as bringing the songs to “long-term owners who are deeply committed to respecting artists”.
Nat Zilkha, the executive who helped lead KKR’s recent music push, left the company at the end of 2021. He has stayed on as an adviser.
KKR declined to comment.
