Justin Bieber, Ariana Grande, and J Balvin would profit handsomely from the HYBE deal to purchase It
Scooter Braun will pay more than $40 million in equity to artists and workers as part of the $1.05 billion contract.
According to a regulatory filing from HYBE, the publicly traded firm formerly known as Big Hit Entertainment, the $1.05 billion agreement to acquire Scooter Braun's Ithaca Holdings would award Braun's artists and employees more than $40 million in equity, including shares to Ariana Grande, Justin Bieber, J Balvin, and Demi Lovato.
Based on the current exchange rate, a total of 39 individuals, including Braun and Big Machine Label Group CEO Scott Borchetta, will receive shares worth approximately $161 million. According to the company filing, Braun will receive 462,380 shares ($86.2 million), Borchetta will receive 166,537 shares ($31.1 million), and Grande and Bieber will each receive 53,557 shares ($11.0 million).
Balvin will receive 21,423 ($4.1 million) shares, while Lovato will receive 5,355 ($1.06 million) shares. The remaining 33 people on the list are a combination of writers, executives, and current Ithaca investors.
This isn't the first time HYBE has given shares to musicians. The seven founders of BTS each issued $8 million worth of shares when the company went public on the Korean stock exchange last October. According to reports, the equity being awarded to Ithaca's artists comes from Braun's stake.
HYBE, the parent company of K-pop sensation BTS, revealed Friday (April 2) that it will pay $1.05 billion in cash and stock for Ithaca Holdings, in a move aimed at helping the Korean firm develop a strong presence in the United States while also raising its profile among American financial investors. Braun will join the board of HYBE, while Borchetta will remain CEO of Big Machine Label Group, according to the terms of the contract, which is expected to close in about a month.
Ithaca's entertainment assets, which include the Big Machine label, the SB Projects management company, and its film and gaming interests through Mythos Studios and 100 Thieves Gaming, are combined with Big Hit Entertainment's management company and brands.
Since going public in October, HYBE has used BTS' global clout to buy smaller labels, form joint ventures, and form strategic alliances with South Korean and American labels, including Universal Music Group. The agreements also taken HYBE closer to the US market and to founder and CEO Bang Si-ambition Hyuk's of turning the company into an international entertainment conglomerate.
HYBE and Universal revealed in February that the Korean company would form a joint label with Geffen Records and co-produce a show similar to American Idol to find the next global K-pop boy band. The new label will be based in Los Angeles, where HYBE expects to expand its US operations later this year.
Ithaca Holdings will alleviate pressure on HYBE to diversify its artist roster beyond BTS, which accounted for 97 percent of the company's revenues in 2019, particularly with the group's oldest members' mandatory military service looming in two to three years.
The Ithaca Holdings deal was revealed after the Korea Stock Exchange closed trading on Friday, with HYBE's shares closing at 243,000 KRW ($214.97) per share, giving the firm a market capitalization of 8.5 trillion KRW ($7.27 billion), down marginally from the 8.7 trillion KRW value on Oct. 15.
According to a HYBE filing, HYBE is financing the transaction with at least $100 million in debt in addition to Big Hit securities. The stock shares are likely to have a lock-up clause, meaning the beneficiaries won't be able to sell them until a certain date.
Financial music executives were taken aback by the Ithaca valuation, particularly after Braun and Ithaca's financial sponsor, the Carlyle Group, sold Taylor Swift's catalog to Shamrock Holdings for an estimated $300 million last November. It had been 16 months since they had purchased Big Machine.
According to reports, Ithaca purchased 80 percent of Big Machine in a transaction that valued the firm at $380 million, leaving Borchetta and probably some of his partners with a 20 percent stake that was apparently transformed into Ithaca shares.
The Big Machine labels will also release HYBE music by Florida Georgia Line, Carly Pearce, Lady A, Jennifer Nettles, Rascal Flatts, Sugarland, Sheryl Crow, Thomas Rhett, Tim McGraw, Brantley Gilbert, and the Eli Young Band, in addition to Swift's catalog.
Billboard previously reported the Big Machine made about $100 million in sales on average from 2015 to 2018, including about $40 million in earnings before interest, taxes, depreciation, and amortization. However, since the Swift catalog created so much income, she was also responsible for a sizable profit margin contribution — nearly three-quarters of overall EBITDA, according to Billboard.
Prices for music assets have risen dramatically since Borchetta sold Big Machine to Ithaca, with Universal Music Group reaching a 30 times EBITDA multiple from its deal with Tencent Music Entertainment. The proposed stock sale by UMG later this year is expected to yield an even higher multiple.
Using those multiples, Billboard estimated the Big Machine alone could be worth $950 million at the top end. But that was before Ithaca sold Swift's catalog for $300 million to Shamrock Holdings. Big Machine is worth half as much without the Swift catalog, ranging from $300 million to $650 million. That means Ithaca's remaining interests in technology, film, and gaming have contributed a sizable portion of the company's value.
Regardless, the Carlyle Party may be the biggest beneficiary of the contract. Carlyle will sell a large minority interest in Ithaca Holdings, according to Ithaca Holdings and HYBE, which invested in the firm in 2017.
Sources say Carlyle was the primary beneficiary of the $300 million Shamrock paid for the Swift catalog even before it was sold off.
HYBE's U.S. holdings will be greatly enhanced with the addition of Big Machine and SB Holdings. Bieber, BTS, and Grande's combined management and label rosters would give HYBE more firepower in the entertainment lifestyle industry.
HYBE could also be inheriting a Fast headache as a result of the contract. Last year, after learning that Braun owned her catalog as part of the Big Machine purchase, the pop star expressed her displeasure. She said she had wanted to buy back her catalog but had never been given the opportunity. She went on to criticize the contract and everyone involved in it. She also runs her own publishing house.