Merck Mercuriadis has a long reputation for being one of the music industry’s most successful fixers, but he’s about to become the most powerful mogul in the business.
In the past, he managed artists like Beyoncé, Elton John, Guns N’ Roses, Mary J. Blige, and countless others. But his current venture, the billion-dollar  investment vehicle Hipgnosis Songs Fund, has catapulted him from fixer to philosopher-king. The industry press routinely christens him with hagiographic headlines like “The Man Who’s Spending $1 Billion to Own Every Pop Song.”
Depicted: A headshot of Merck Mercuriadis. Photo Credit: Jill Furmanovsky.
But as a manager-turned-investor, Mercuriadis and his company are not easily recognizable to the general public. He isn’t a musician himself, nor he is a music streaming site CEO trying to get you to download an app.
Instead, he is a man with a simple plan and a very large war chest.
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Who is Merck Mercuriadis?
Mercuriadis was born in a small town in Quebec. At age 19, he landed a job at Virgin Records after bombarding them with countless letters. He was involved in signing artists like Mary Margaret O'Hara, but eventually left because he wanted to directly represent artists as opposed to just advocating for the label.
He joined the United Kingdom-based management company Sanctuary. He spent more than twenty years there, rising up to CEO of Sanctuary Group PLC. where he oversaw the management of Destiny’s Child, Beyoncé, Nelly, Tommy Lee, the Who, Robert Plant, and more. Sanctuary grew into the world’s largest music management business and the largest independent label in the United Kingdom.
After several successful decades, Sanctuary overextended themselves financially and discovered fundamental accounting errors. After twenty years of working at Sanctuary, Mercuriadis resigned in 2006. Sanctuary sold to Universal Music Group in 2007. Afterwards, most of Mercuriadis’s management clients left him.
Mercuriadis built his reputation at Sanctuary, but most likely he will be remembered for his second act—something more ambitious than anything most managers ever dream of.
What is Hipgnosis Songs Fund Limited?
Depicted: The Hipgnosis Songs Fund Limited logo. Used under Fair Use.
Hipgnosis Songs Fund Limited is a British investment fund that gives institutional investors exposure to songs as an asset class. They specialize in buying stakes in some of the most culturally-acclaimed and commercially-successful songs ever recorded. They don’t take chances on unknown artists—instead focusing on the annuity-like income that proven songs come with.
Music as an asset class
A key part of the Hipgnosis sales pitch is the idea that hit songs are both reliable income and uncorrelated with the stock market or other assets—making Hipgnosis an ideal investment for funds that want to diversify their risks..
A song being commercially successful is not enough for it to be a good investment to Hipgnosis; it also has to be relevant to the culture. In one interview, he said, “With the greatest respect to Pixie Lott, I’m not buying her number one single, because it has no cultural importance”
Giving power and capital to songwriters
Mercuriadis describes coming up with the idea for Hipgnosis while brainstorming with his management client Nile Rodgers about how to change the industry. They saw the songwriter as the “low man on the totem pole” despite being vital to the success of recording artists.
And they’re certainly paying songwriters. Hipgnosis typically doesn’t buy music rights from publishing companies—instead cutting Gulfstream-sized checks directly to songwriters or their estates.
What does the Hipgnosis catalog look like?
First of all, you can listen to it. Hipgnosis’s top 150 songs are available as a Spotify playlist.
Currently, they own stakes in five of the Billboard Hot 100’s top ten songs of the decade:
#1: “Uptown Funk” by Mark Ronson ft. Bruno Mars
#3: “Shape of You” by Ed Sheeran
#4: “Closer” by The Chainsmokers ft. Halsey
#5: “Girls Like You” by Maroon 5 ft. Cardi B
#9: “Despacito” by Luis Fonsi & Daddy Yankee ft. Justin Bieber
By the end of March 2020, Hipgnosis declared stakes in 13,291 songs across 54 catalogs independently valued at $953 million. This is very small for a company of their size.
Based on public filings, I have found 12,419 of those songs across 48 catalogs. The difference is likely made up from catalogs that I missed or weren’t announced yet . Based on my count, below is a chart of Hipgnosis’s catalog size since their first announced deal in July 2018.
Depicted: Hipgnosis’s catalog growth over time, per my calculation from public filings as of April 23, 2020. The spreadsheet for this graph, including links to original filings, is here. Photo Credit: James Mishra.
Note the massive increase in investment December 2019. It is likely that the songs that I were not able to find would steepen the curve well into 2020.
What do Hipgnosis’s financials look like?
Hipgnosis planned, and then cancelled, an IPO in summer 2017. They went public a year later with the ticker SONG on the London Stock Exchange. Since summer 2018, Hipgnosis has raised at least £628.5 million  from equity sales, plus a £65 million revolving credit facility (RCF), and then a £150 million RCF.
In the public markets, Hipgnosis’s stock price has stayed largely steady—except for a customary COVID-19 price shock around late March 2020. Hipgnosis made it into the FTSE 250 just twenty months after the IPO—which Mercuriadis claims is the fastest any company has ever made it onto the FTSE 250.
Depicted: Google’s infobox showing Hipgnosis’s stock price since their July 2018 initial public offering. Hipgnosis trades on the London Stock Exchange as LON:SONG. Photo Credit: James Mishra.
Some industry voices are quietly criticizing Hipgnosis for overpaying for catalogs, making it hard to compete—an accusation that Mercuriadis regularly pushes back on in interviews.
But are they overpaying?
Hipgnosis’s blended acquisition multiple for their entire catalog is high and has been creeping higher. Their multiple was 12.75x their historical annual net income as of March 2019. A year later, the multiple creeped up to 13.9x. Hipgnosis explains that the rise reflects that they are acquiring the “finest vintage Catalogues of all time” such as from Journey and Timbaland .
No matter what the critics say, Hipgnosis is not the only one paying these multiples. Mercuriadis claims that they do get outbid for catalogs . Many of their competitors are acquiring catalogs or publishing companies at high multiples—see below. Furthermore, BMG CEO Hartwig Masuch noted in a staff memo that they were seeing prices for music assets were “some cases beyond all reason, a game BMG is unwilling to play.”
Who are Hipgnosis’s competitors?
Other notable players are:
Tempo Music Investments
Tempo Music is an acquisitive investment fund launched in December 2019 as a partnership between Warner Music Group and the private equity firm Providence Equity Partners. Tempo started with $650 million raised from equity and debt, with most of it coming from Providence.
Ithaca Holdings is one of the many business ventures of the music super-manager Scooter Braun. Ithaca became world-famous when it acquired Scott Borchetta’s Big Machine Label Group for around $300 million. Big Machine helped build Taylor Swift’s career and her masters were a portion of the assets sold to Ithaca. Swift whipped up an Internet firestorm over allegations that Borchetta promised her the right-of-first-refusal in any sale and that Braun had bullied her in the past.
Primary Wave Entertainment
Founded in 2006, Primary Wave got its start by purchasing a 50% stake in Kurt Cobain’s music publishing. They later raised more than $800 million across two funds, much of it from the investment firm BlackRock. Most recently, Primary wave acquired a majority stake in Ray Charles’ pre-1964 publishing catalogs.
Concord is a music company founded in 1973. They have acquired numerous record labels and publishing companies in that time. In 2017, Concord announced the purchase of Dutch music publisher Imagem for €450 million. In 2020 Concord bought PULSE Music Group for more than $100 million.
Downtown is a conglomerate made up of a publishing company, a neighboring rights company, a pair of recording studios, and the music rights management platform Songtrust. Downtown has also acquired AVL Digital Group and the South African music publisher Sheer.
Kobalt Music is a administrative music publisher that generally does not own any copyrights. They instead focus on providing services to rightsholders. Kobalt has raised hundreds of millions of dollars in venture capital from GV (Google Ventures), Section 32, Hearst Entertainment, and other firms.
Kobalt’s subsidiary Kobalt Capital is an an acquisitive investment fund like Hipgnosis. In November 2017, Kobalt Capital announced a staggering $600 million fundraise (from both equity and debt). One month later, Kobalt Capital acquired SONGS Music Publishing for around $160 million.
Round Hill Music
Founded in 2010, Round Hill is a conglomerate made up of a record label, a music publisher, and other business units aimed at artist and label services. Round Hill bought the publisher Carlin Music for $245 million—at a 16x multiple of gross profit. Two months later, Round Hill acquired music licensing and publishing firm Zync Music.
Royalty Exchange is an online marketplace for buying and selling music royalties. In late 2017, they created a subsidiary called Royalty Flow aimed at buying and holding royalty streams from the world’s biggest artists—much like Hipgnosis. In attempt to purchase 25% of the producer’s share of Eminem’s catalog from 1999 to 2013, Royalty Flow tried to float a SEC Regulation A+ public offering on NASDAQ.
NASDAQ ended up revoking their provisional approval for Royalty Flow in April 2018 shortly before the public offering. Royalty Exchange CEO Matt Smith wrote a Medium post blaming Regulation A+ itself for what happened to Royalty Flow.
What is the future for Hipgnosis?
The music rights market is heating up, with venture capital, private equity, public equity, and public retail investors all chipping in. The fall of piracy, the rise of paid music streaming, and the Music Modernization Act have set the stage for music to become even more profitable.
Across numerous interviews, Mercuriadis has described his desire for Hipgnosis to own 20% of the music publishing market. And it’s certainly within reach. Hipgnosis has the vision, the leadership, the war chest, and investor relationships to raise even more to take that 20% or even more.
The Hipgnosis catalog as of March 2020 was worth $953 million—slightly less than $1 billion. However, it is likely that additions since then have pushed the value of their catalog to above $1 billion. However, their publicly-traded market cap is a $702.07 million at this time of writing.
I am missing up to a few thousand songs plus at least four catalogs—including Greg Wells, Jonny Coffer, Rainbow, and Scott Harris. These four are listed on the Hipgnosis website but are not yet listed in public filings.
Hipgnosis’s competitors often criticize them for overbidding on catalogs beyond rational economic sense. Merck Mercuriadis has pushed back on this allegation, stating in a podcast interview with Music Business Worldwide that Hipgnosis is outbid by publishers.
The quote comes from page three of this Hipgnosis investor update.
October 29, 2020: Uploaded a higher-resolution thumbnail of Merck Mercuriadis and removed an unnecessary footnote.