Round Hill Music Royalty (RHM) has announced that its board and that of Alchemy Copyrights, LLC, trading as Concord have reached agreement on the terms of a recommended cash offer at US$1.15 per RHM share, which values RHM’s share capital at approximately US$468.8m.
On the basis of the closing price per RHM Share of US$0.69 per share on 7 September 2023, the offer price represents: a premium of approximately 67.3 per cent to the closing price; a premium of approximately 64.0 per cent to the six-month volume weighted average price per RHM Share of US$0.70; and a discount of approximately 11.5 per cent to RHM’s Economic NAV per RHM Share of US$1.30 (as at 8 September 2023).
If the offer proceeds, Concord Bidco, a wholly-owned subsidiary of Concord, will acquire the entire issued and to be issued share capital of RHM. The intention is that this will be implemented by means of a Court-sanctioned scheme of arrangement under Part VIII of the Companies Law.
RHM shareholders will receive the dividend of US$0.01125 per RHM share in respect of the quarter ended 30 June 2023 (as announced by RHM on 31 August 2023). In addition, RHM intends to declare a special dividend of US$0.005 per RHM share to be declared and paid prior to the effective date of the scheme from income accrued by reference to the quarter ended 30 September 2023.
Concord Bidco has received irrevocable undertakings or letters of intent received from RHM shareholders to vote for the proposals in relation to 135,073,427 RHM shares, in aggregate – representing approximately 33.14 per cent of RHM’s issued share capital. It is expected that the scheme will become effective on 1 November 2023, subject to the satisfaction of certain conditions
Background to RHM board’s recommendation
Since its IPO in November 2020, the board says that RHM has carefully invested in what it believes to be an enviable portfolio of music rights comprising 51 catalogues, representing a collection of over 150,000 songs, of carefully selected evergreen music rights that have been chosen based on their ability to generate resilient income, deliver a positive performance in an inflationary environment, and provide the opportunity to unlock latent potential leading to revenue growth.
Following its strong performance in 2022, RHM’s positive growth trajectory has continued through the first quarter of 2023. However, the RHM board believes that this positive financial and operational performance, as well as the continued attractive dynamics of the music rights sector, have not been reflected in the current RHM share price. Along with the broader listed investment company sector in the UK, RHM has experienced a significant de-rating over the last year driven by the inflationary and higher interest rate environment, which has impacted most listed alternative investment companies.
The RHM board believes that the acquisition is in the best interests of RHM shareholders by providing RHM shareholders with an opportunity to realise the value of their RHM shares for cash at a significant premium, and a value greater than the highest price at which the RHM shares have traded since the company’s IPO in November 2020.
As such, the RHM board intends to recommend unanimously that scheme shareholders vote in favour of the scheme at the Court Meeting and that RHM shareholders vote in favour of the resolution at the General Meeting.
Comments from Robert Naylor, chairman of RHM
“The Board is pleased to present this opportunity for liquidity at a premium to both the share price and the IPO price, as well as at a narrow discount to economic net asset value per share. The recommended offer represents excellent value for shareholders.”
Comments from Bob Valentine, CEO of Concord
“Since its IPO, RHM has built an impressive portfolio of music rights which generate revenue across a variety of income streams and have demonstrated their ability to stand the test of time. As one of the world’s leading music companies with a proven track record of strategic catalogue expansion, Concord has a global team of sync, licensing, marketing, copyright and royalty experts well positioned to maximise the value of this portfolio for all of the songwriters and artists within it. This offer enables RHM shareholders to realise their investment in the business at an attractive premium to the undisturbed share price, while the transaction provides an opportunity to create value for all stakeholders.”
[QD comment: We have long said that the valuations that private markets are placing on assets in the alternative assets space, many of which have de-rated heavily as interest rates have risen in response to rising inflation, are frequently higher than listed markets are. It is not surprising therefore to see assets such as these being taken out. It certainly isn’t the first and we doubt it will be the last opportunistic purchase. To illustrate, although it sat within a different class with a different set of headwinds, Civitas Social Housing is another fund that was snapped up in a recommended offer. Fortunately, the discount that RHM is potentially being acquired for looks much more reasonable and, in current markets, we think that shareholders will probably accept this offer. Of course, it will be a shame to see another interesting fund leave the sector a bit on the cheap side.]