Round Hill Music proceeds with pipeline purchase

Round Hill Music proceeds with pipeline purchase – in Round Hill Music Royalty Fund’s  prospectus, it identified a portfolio of catalogues – the Pipeline Investments. These comprise the existing assets of Round Hill Fund One, a private fund whose investments are managed by Round Hill. The Pipeline Investments were independently valued with an aggregate valuation of US$363m, and achieved a net publisher’s share (“NPS”) multiple of 16.2x, on US$22.4m of NPS for the trailing twelve months ending 30 June 2020.

The board plans to buy the Pipeline Investments by way of a two-step process.

First Investment

The first step comprises the acquisition of the assets of Round Hill Fund One excluding its shareholding in RH Carlin Holdings LLC. This deal completed on 1 February 2021. Round Hill Music spent $281,860,320 (86% of the gross proceeds from its IPO and subsequent placing). The price is based on an independent valuation of the assets acquired as at 30 June 2020.

Under the terms of the deal, the company is entitled to receive all income generated by the assets with effect from 1 January 2021, regardless of when the income was earned. This package of rights includes copyrights from artists such as the Beatles, Marvin Gaye, Celine Dion, Rod Stewart, Phil Collins, James Brown, The Offspring, Kiss, Back Street Boys, Lady A and many more. They say that this portfolio is extremely well diversified by genre and income type with a significant proportion of the copyrights from the period between the 1960s and the 1990s.

Second Investment

The second step will involve the purchase of a 29.14% share in the Carlin copyrights owned by Round Hill Fund One. Carlin’s underlying portfolio comprises over 100,000 copyrights across multiple genres from jazz, country, pop, rock and dance, including classics made famous by artists such as Elvis Presley, Meatloaf, James Brown and Billie Holiday, including songs such as “What A Wonderful World”, “Total Eclipse of The Heart”, “Happy Together”, “Under the Boardwalk”, “Are You Lonesome Tonight” and many more.

Round Hill Music is undertaking due diligence into Carlin and its assets, and negotiating the terms of the acquisition documentation. Despite difficulties relating to COVID-19, including the closure of the Copyright Office of the Library of Congress in Washington D.C, and personnel within the legal firms advising the company contracting the virus, it is currently anticipated that the acquisition of the second investment will complete no later than 31 March 2021. The price will reflect the underlying valuation of the copyrights owned by Carlin as of 30 June 2020.

Borrowing facility and fundraise

The board says that detailed heads of terms have been agreed with Truist Securities, Inc. for it to act as lead arranger to provide, arrange or place a revolving facility (RCF) with a syndicate of banks and other institutional lenders.  It is anticipated that the RCF will be used to part finance the second investment as well as to acquire future pipeline opportunities.

Following the completion of the second investment, the company will have fully invested the capital raised in the IPO and subsequent placing [you can guess what happens next].  There is a further near term pipeline worth about $500m. The board is exploring various options to finance their acquisition, including a potential equity raise.

Dividend

Following the completion of the second investment, the company anticipates paying a first interim dividend (expected to be declared in March 2021 and paid in June 2021) as part of a planned 4.5% dividend on the IPO price for he year ended 31 December 2021.

This is what Round Hill is buying:

RHM : Round Hill Music proceeds with pipeline purchase