When a singular artist is responsible for the vast majority of a music company’s revenues, does that music company have a moral obligation to give said artist equity in its business?
That’s certainly the case at Big Hit Entertainment, where filings show that K-Pop sensations BTS generated 87.7% and 97.4% of the firm’s revenue in the first half of 2020 and 2019 respectively.
With Big Hit inching towards an $800m-plus IPO in Korea, the firm’s founder and CEO, Bang Si-hyuk, has handed 478,695 common shares in his company to BTS, which works out to 68,385 shares for each of the seven members.
Big Hit said in a fiscal filing last month that it made the decision to give the group equity in order to “strengthen long-term partnership with major artists and boost morale”.
After being granted preliminary approval for an IPO by the Korea Exchange last month, BTS’s label is planning to go public in the coming weeks. Big Hit is aiming to float 7.13m shares, with an indicative price range of 105,000 to 135,000 South Korean won per share.
This suggests that BTS’ cumulative stake (those 478,695 shares) will be worth circa 64.6bn Korean won, which equates to just over $54m at current exchange rates.
Big Hit’s recent regulatory filings also reveal that Bang Si-hyuk owns 12,377,337 shares in the company – a 43.44% total stake in the business.
His equity holding could therefore be worth 1.67 trillion Korean won (at a 135,000 won per-share price). At current exchange rates, that makes Bang’s stake in Big Hit worth approximately $1.4bn.
It’s worth noting that while Bang Si-hyuk owns 12.4m shares, Big Hit is only putting 7.13m on the stock market for its IPO, which means that it’s floating less than half the company on the public market (initially, anyway).
Either way, the IPO looks certain to ensure that Seoul-based Bang becomes one of the richest ever executives to work in the global music business.
The Korea Herald cites analyst Kim Hyun-yong as stating that “Big Hit’s market cap can reach up to 4.8 trillion won based on the [IPO] offering price”.
That would give Big Hit a $4.0bn market cap valuation at current exchange rates, around a quarter of the size of Warner Music Group.
But some analysts say that’s too high.
Speaking to the Financial Times on Thursday (September 3), SK Securities analyst Lee Jin-man said that “the price range looks expensive relative to its earnings and compared with its rivals”.
Big Hit generated revenues of 587.2 billion South Korean won (over $500 million) in 2019, which was up 95% year-on-year.
In the H1 2020 period, Big Hit generated revenues of 294bn South Korean Won ($249m at current exchange rates) which was significantly up on the same period of last year (H1 2019), when the company posted half-year revenues of 200.1bn Won ($166m).
As noted by the FT, the indicative price range for the IPO suggests that the K-Pop company will begin trading at 76x its projected 2020 earnings.
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