UMG Spinoff To Test Investors’ Appetite for Music

Vivendi SE’s spinoff of Universal Music Group, expected Tuesday, will leave the French conglomerate bereft of its most lucrative business and will test the market’s appetite for music as an asset class,, reports The Wall Street Journal.

The world’s largest music company, behind stars including Taylor Swift, Drake and the Beatles, will debut on Amsterdam’s Euronext stock exchange with shares to be distributed to Vivendi’s investors. The move comes amid rising interest in the resurgent music business as an investment and following a recent boom in the value of music catalogs, music-streaming companies and technology for creators.

Wall Street Journal graphic

Analysts value Universal Music above €40 billion, equivalent to about $46.9 billion, higher than recent estimates and transactions indicate. In August, the company was valued at €33 billion, when billionaire William Ackman bought a 10% interest through his Pershing Square Holdings Ltd. hedge fund. The purchase came after Ackman scrapped ambitious plans to use his special-purpose acquisition company, or SPAC, to invest in Universal, citing Securities and Exchange Commission concerns.

Once public, analysts say, Universal will be the best way to participate in the music market. Competitor Sony Music Entertainment is accessible only as a small piece of Japanese conglomerate Sony Group Corp. ; Warner Music Group Corp. has less than 15% of its stock listed publicly and is controlled by billionaire Len Blavatnik.

Universal’s prospectus outlines the growth prospects of the music business, in which it commands some 40% market share. The more big acts it has under its umbrella, the more Universal makes from its licensing agreements with music-streaming services, such as those offered by Spotify Technology SA, Apple Inc. and Amazon.com Inc. Nine of the top 10 recording artists of 2020, by sales—and slices of the 10th—are on its roster, according to the International Federation of the Phonographic Industry.

After years of decimation because of piracy and plummeting CD sales, the music industry has been growing since 2016, thanks to the rise of music streaming. “Even with its strong growth in recent years, UMG believes streaming is still in the early stages of global penetration,” the music company said, pointing to technological innovations across devices and formats such as voice-controlled speakers and connected cars. It also highlighted music’s intersection with social media and gaming, and licensing opportunities in digital health and fitness industries.