Universal Music Group’s IPO


By Martín Palomar, Olivier Baverez, and Léo Clément (HEC Paris)

 

Summary of IPO


Universal is the world’s largest owner of Music rights. As the global music streaming sales grow steadily, Music giants have greatly benefited from the trend. The industry is at a point in time where emerging markets represent a fresh and vibrant opportunity for expansion, all the while per capita expenditure in streaming services continues to grow in already established markets.


It is in this context that the French conglomerate that owned Universal Music, Vivendi, decided to spin off 60 percent of Universal’s shares on the Amsterdam Euronext Stock exchange. The company will become an independent entity owned at 10% by Vivendi and 18% by the Bolloré Group.


The IPO which took place on Tuesday 21 of September was a success, shares leapt from an €18.50 listing to €25.10 at closing on the same day, raising the valuation from the original €33bn to €45bn. Lucian Grainge, CEO of Universal, got a $140m payday as compensation for the success of the listing.


The French media giant Vivendi is left with only three remaining companies, whose combined revenue is less than that Universal Music alone would bring. However, Vivendi has stated it will use the €8bn leftover of cash to expand the business towards the publishing and retail market.


Company and IPO Profile:


Sector(s): Music-based entertainment

Exchange floated: Amsterdam

IPO type: Direct listing


Shareholder information:

  • Bolloré Inc: 18%

  • Vivendi: 10%

  • Scherzo: 10%

  • Pershing Entities: 10%

  • Float % of traded shares: 52%

Valuation:

  • Market Capitalization: €45,41bn

  • EV: €48,62bn

Advisors:

  • Exane BNP Paribas

  • Crédit Acricole

  • Morgan Stanley

  • Natixis

Strategic Rationale


From 1999 to 2014, the Music industry saw a continuous decline in its revenues, it has bounced back since. At its peak, when the millennium had just begun, CDs were a hefty contributor to the industry revenue, amounting for over 90% of it. The following decade saw the digitalization of such goods rise rapidly, this quickly resulted in a vertiginous downslide for physical record sales. Hence from 1999 to 2014, the industry saw a dismal dip in revenue, which only took off again when music began to be consumed as a service through streaming platforms. Since then, music giants like Warner, Sony and Universal have gained in size and profitability constantly, through lending Music rights.


It seems Vivendi, the French group that held Universal up until the IPO, had a brilliant and visionary plan in mind when it turned down an $8.5bn offer by SoftBank to acquire Universal music in 2013 -one year before industry revenues hit rock bottom. At the time, analysts were all the more baffled as this valuation was 2 to 3 billion dollars above experts’ estimates.


Eight years later, Vincent Bolloré, CEO of Vivendi, proved his long term vision to be right: a $33bn valuation was set for the IPO, far below JP Morgan’s $54bn “conservative” estimate.


Why then, did Vivendi spin-off Universal at a time where streaming services expand to emerging markets and have overall bullish growth outlooks?


Sceptic analysts such as private equity executive Guy Hands deem the current investor appetite for the music industry to be at its peak and beyond what can be justified. So this might be an opportunistic move by Vivendi not to miss the current wave of speculation in the markets.


Market Reaction</