The music business was forever changed on June 2 last year when Concord Music announced that it had swooped for historic European publisher Imagem in a deal valued at comfortably north of $500m.
Since then, Concord has bought a bunch of lucrative copyrights from Warner Music Group, in addition to acquiring movie soundtrack label Varèse Sarabande, the Tams-Witmark Music Library, Latin music company Fania and 3,000 recordings from legendary jazz label, Savoy Music Group.
And earlier this month, Concord acquired renowned British indie label Independiente, whose masters include the likes of Travis, Embrace and So Solid Crew.
Prior to Imagem, Concord was hardly an M&A slouch; its buyouts from 2014-2017 included Fearless and Wind-up Records, in addition to Vee-Jay Records, Discos Musart, Rounder Records, Vanguard, Sugar Hill, Americana/folk/blues specialist High Tone, Bandit Records and Razor & Tie.
And prior to Bicycle Music and Concord coming together under the singular name Concord Music, The Bicycle Music Company completed over 100 publishing and master recording catalog deals.
In fact, according to MBW’s sources, inclusive of its buyout of Fantasy Inc in 2004 (and the activity of now-subsidiary Bicycle Music), Concord has spent over $1bn on mergers and acquisitions in the past 14 years – with circa 25 label/master recordings acquisitions secured since the late 2000s.
At least $150m of that money, suggest our calculations, has been spent in the last 12 months alone – with Concord’s acquisitive activity across publishing, masters, theatrical and new talent showing little sign of slowing down.
You might expect the person hunting out and executing Concord’s string of mergers and acquisitions to be something of a browbeating, Art Of The Deal type – but that wouldn’t sufficiently describe Steve Salm.
The New York native is a calm, methodical, music fanatic whose first music memory is hammering Journey’s ‘Escape’, before moving on to Dylan, Neil Young and Pearl Jam – and who happens to love a unique combination of both numbers, math and songs. (These days, Salm’s tastes are more geared towards War On Drugs, The Helio Sequence, Damien Jurado, or Sun Kil Moon.)
Having fallen for Pearl Jam during his college years at Cornell, Salm (pictured) went on to study for his MBA at Atlanta’s Emory University in the late ‘90s.
There, he landed an interesting moonlighting gig as a local music beat reporter for MTV’s website – an experience, he says, which brought him closer to artists than your average M&A/business development exec might ever find themselves.
“The artist’s mind works in very, very different way than a lot of people who sit at desks, or who do nine-to-five.”
“Seeing how the artist’s mind works, to this day, is a key driver on my philosophy on the business,” comments Salm. “The artist’s mind works in very, very different way than a lot of people who sit at desks, or who do nine-to-five.”
After a short stint working on Digital Rights Management products at IBM, Salm became a consultant who specialised in drafting business plans for startups.
One day, a company which was trying to value music copyright royalty streams came his way. He did a bang-up job, and word got out.
Soon, another music company – this time a “wonderful, vibrant, independent music publisher” – called on Salm to value their catalog.
Salm won’t reveal the name of this company today, but says: “They’re still around, and the founder’s probably reading this interview. I credit him with giving me a chance, and it’s amazing to see what his company has become.”
Salm was in the club.
From there, in 2006, he was taken on by Wood Creek Capital to hunt out and acquire copyrights in the music publishing space, before Wood Creek married Salm’s initiatives with Beverly Hills-based publisher Bicycle Music – run by Jake Wisely and owned by Steve Smith – in 2006.
As the financial crisis hit in 2008, Salm and Wisely began to expand beyond publishing rights and into masters – an area not getting any love from Wall Street at the time.
Says Salm: “The basis for what I do is to assess where global music culture, data and investment management intersect. I have to acquire assets for my investors that both stand the test of time culturally and also drive attractive ROI’s.
“When I started looking at master catalogs and where they were being priced relative to publishing catalogs in the mid-to-late 2000s it became very apparent, very quickly, that there was a disconnect. I don’t think the investment community really had any appetite for master recordings, and we made some game-changing investments.”
“I don’t think the investment community really had any appetite for master recordings, and we made some game-changing investments.”
He adds: “Publishing was always the most well-behaved child – it was easy to explain to institutional investors. But then these acquisition opportunities came up for us, where people said, ‘If you want this publishing catalog, you’ve got to buy the masters.’ Such was the case for two of his favorite deals he’s completed, TGH, which included The Nine Inch Nails catalog and Original Sound master and publishing catalog, created by Art Laboe.
“You have to give credit to [Bicycle investors] Steve Smith, the late Brett Hellerman, Jon Rotolo, Alex Thomson and other people who were on our board, who said, ‘You know, we are going long on music IP in general. Let’s not be afraid of these master recordings.'”
As the acquisitions kept racking up, in 2015, Bicycle Music was merged with Concord, and a new-look music industry empire was born.
Says Salm: “That deal gave us at Bicycle an opportunity to take all our master recordings and optimize them through the Concord system, and it gave Concord the opportunity to take their publishing catalog and hand it over to Bicycle. Both platforms came together to set the stage for an epic growth story.”
That epic growth story now sees Concord boasting a turnover which will exceed $400m in 2018.
Below, we talk to Salm, Concord’s Chief Business Development Officer, about what’s come since – the major acquisitions, the sudden upturn in the industry’s recovery, and one of the most intense M&A markets in music’s history…
Tell the story of that $500m+ buyout of Imagem…
From a business development perspective, I was extremely challenged [at that time] to figure out how I was going to recreate the glory days of the mid-2000s, where you could buy ten [hit] songwriter catalogs in a year, direct from songwriters.
Through the 2010s, those deals had pretty much vanished; you were either going to buy a roll-up, or you were going to pay in a mid-teens multiple for a rare singer/songwriter catalog.
“We want as many high quality masters catalogs as we can find, but investors love and understand publishing.”
Because of the extreme scarcity of publishing assets, we shifted and did a tremendous number of master catalog and label deals in a three year span from 2014-2017. Remember that in 2015/2016 the economics of streaming were still mysterious.
So, simply stated, we then looked to balance our portfolio [at Concord] and wanted to acquire a substantial publishing catalog; we want as many high quality masters catalogs as we can find, but the reason why investors love and understand publishing so much is because it’s the rock and it’s the foundation.
So, the Imagem deal came about and, like the Concord/Bicycle deal, it matched up two companies whose assets complemented each other.
Were you concerned that master revenue is less predictable than publishing music revenue?
We don’t really know how the consumer’s going to behave on the record side, even though we’re seeing incredible growth with streaming. So [Imagem] was a diversification play: we’ve matched any potential risk in what is a high-growth business on the master side with this influx of publishing assets.
Clearly we are in a scenario right now where the consumer has adopted streaming on such a mass-scale that the concept of risk on the recorded side lessens every day. It’s really exciting to have a front-row seat for that.
One interesting thing I noticed was if there’s a sub-$50m deal out there, the marketplace is willing to take more risk and pay higher prices. But once you get in the fantastic position, with the support of your investors, to go after deals that are in the high tens of millions or hundreds of millions of dollars, your competition drops off dramatically.
Whether it’s Imagem, or my other deals right now, we are constantly looking for opportunities which the pack is not all running towards – though that doesn’t mean that we do not get into auctions on occasion.
Do you foresee a day that another nine-figure asset is sold in the music business over the next year or two, or have those deals all been sewn up?
There are nine-figure deals out there. There are certainly high eight-figure deals out there. I see them with regularity.
I think the interesting thing when you get into deals that are in that price range, you are at a completely different realm of M&A. With that many dollars at stake as well as organizational complexity to what you might acquire, you’re forced to move away from simple and traditional NPS [Net Publisher Share] or NLS [Net Label Share] metrics and valuations. In those ranges, the acquisitions come with necessary key personnel, added costs, and stresses to your platform.
“ We are doing big deals. And our philosophy many times is, we aren’t just buying or rolling up NPS.”
Thus, the acquirer with the ability to integrate across their scaled platform is going to have a very significant deal-making advantage over the acquirers who didn’t have a robust infrastructure.
We are doing big deals. And our philosophy many times is, we aren’t just buying or rolling up NPS. We are investing in epic assets with the mission of significantly growing their value. And in order to properly respect that strategy we want the best and the brightest [staff] to come along with that transaction where appropriate.
Can you elaborate on that?
A lot of times with acquisitions, if you’re valuing them on Net Publisher Share, your assumption is that you can just pick off those assets, drop them right on top of your system and your infrastructure, and it’s not going to cost you an extra penny. It’s literally the definition of a “roll-up strategy”.
But tethered to each of these songs, recordings or theatrical productions we invest in, there are people who helped create those works of art along with their industrial knowledge in that history. If you do not want to break that bond then you have to assume it comes at extra cost. It’s a very sensitive thing.
Some suggest that the multiples in music publishing have reached a point whereby people who once were very acquisitive are now extracting themselves from chasing sizEable, significant deals. What’s your view on that?
We all know that the economics on the masters side exploded before the publishing revenue did. We were fortunate enough to be on the forefront of that trend. Thankfully, in the past 12 months, we’ve seen quite a decent amount of growth coming off certain royalty stream types in the publishing world that for years before were at best flat, maybe growing with inflation, if you were lucky. So that has to positively impact your view of multiples.
I think it’s short-sighted to critique anyone who’s acquiring publishing assets now for what you might deem to be outsized multiples – meaning teens – because if you were to take these earnings out and say, “I’m going to get 5% consolidated annual growth rates out of this for the next five to ten years,” your 14, 15, 16, 17 multiple today might be a 9 or 10 a couple of years from now.
It’s very easy for those who lose a deal, to point their finger and laugh, and to say, “These guys are crazy. Look how much they paid!”
A lot of times that’s said because someone lost a deal. We’ve all been there and it’s almost like a way we come to terms with not having won that deal we loved.
Have you seen any deals you consider crazy in the recent marketplace?
There actually would be very few moments where I would criticize my competitors for the prices they paid. We are in the unique business of investing in rare works of art.
If they paid what was thought to be too much three years ago, they might make it up tomorrow, next week, or three years from now. As long as your investors have a cost of capital that can weather the initial return of a mid-to-high teens multiple, and that you’ve conducted responsible and accurate diligence, you might, in time, be looking back and saying, “Hey, it turned out to be a 25% IRR. We won the bet.”
Today’s multiple could become tomorrow’s gem.
“you have people who are stuck in the past saying, ‘Hey, this multiple is too much because I’m only getting a 6% return,’ and then you have [those who] say, ‘We are about as bullish on the growth of music assets as you can be, so go scoop up everything.'”
So, you have two different philosophies. Again, you have people who are stuck in the past saying, “Hey, this multiple is too much because I’m only getting a 6% return,” and then you have peers and competitors in the marketplace, who have investors that say, “We are about as bullish on the growth of music assets as you can be, so go scoop up everything.”
We’ll know the true trajectory in two or three years when the economics of streaming are well-tested.
I have my own way of trying to dollar-average cost our portfolio so that we’re in the sweet spot, but you also have to realize, each financial sponsor is looking for something different out of their capital. One size doesn’t fit all as it relates to why each of us in the industry is willing to pay certain multiples. My competition comes in the form of public companies, institutional investors, wealthy individuals and start-ups. Each has its own cost of capital and investment horizons.
When you look around and see Round Hill, Primary Wave, Kobalt Capital etc. fighting for these assets, it must be a pain – but also quite exciting.
It would be sort of tragic that if the person tasked with acquiring all of these musical gems and winning deals wasn’t overtly competitive. That’s just how I’m wired. But after all these years and well over 150 deal-closings we have our discipline and we stick to it.
Sometimes that means you lose a deal you loved. My competitors are all people I respect. But I would be lying if I said that whenever I see an MBW headline which says [someone else] won a deal, I don’t tacitly say, “Man, I wish my company’s name was on that story.” It’s the nature of competition.
“I’d be lying if I said that when I see an MBW headline that says someone else won a deal, I don’t tacitly say: ‘Man, I wish my company’s name was on that story.'”
In fact, I would describe this industry as being in an extended state of hyper-competition for the sole fact that a perfect song and its recording are rare gems. Because of that, there has not been a day in 12-plus years where I went in and said, “I want that song you wrote that the entire world knows and loves, and here’s what I’m going to pay you. Take it or leave it.” You’d just get laughed out of the room.
After Imagem, the ammunition I have from my deal-making seat is three-headed: it’s publishing. It’s master recordings, including new releases, and it’s Broadway and theatrical.
What the combination of Bicycle, Imagem, and Concord has done, from a business development perspective, is give us a suite of offerings and human resources that for the most part, are vastly differentiated from competition.
Are you feeling bullish about the next few years? Do you have any concerns when you look at the current streaming landscape?
How do different types of music fans consume their music? Concord has a deep, deep catalog in ‘grown-up’ music across jazz, blues, classical, Americana and bluegrass.
Those sorts of genres are currently not very well served by the streaming platforms. So, the question is, with the catalog that we have, how do the various technology offerings out there help?
We need to make sure that we understand exactly where our consumers are so we can reach them to the best of our ability. Some of that’s physical, and some of it is digital.
One of our divisions, Craft Recordings, focuses a lot of its resources on extremely high-end re-issues, re-packages, specialty box sets, physical product, vinyl, all these sorts of things where we go back to the artists themselves, and we have them work with us to produce and create very high-end packages that sell in the hundreds of dollars.
What about the future for Concord itself? there’s always noise about what if one of the majors bought you…
I certainly appreciate that every single one of the investors that started with us in 2006 are still with us now. In fact, it’s actually gone beyond that, where a lot of people who at first didn’t want to invest, now come banging on our doors, wishing they could.
We have an investor base that is so committed to this company; the message back from our investors is, we’re absolutely in love with this asset class and the brand you’ve built – and we want more.
So I think the future of Concord involves a lot more acquisitions – and a lot more sleepless nights for me!
Strategically, financially, and philosophically, we’re having a blast. We want people to continually look at the headlines that you put out, and say, ‘Wow. There goes Concord again…’Music Business Worldwide