HYBE’s $1.05 billion deal to buy Scooter Braun’s Ithaca Holdings will award Braun’s artists and staff with more than $40 million in equity, including shares to Ariana Grande, Justin Bieber, J Balvin and Demi Lovato, according to a corporate filing from HYBE, the publicly traded company formerly known as Big Hit Entertainment.
A total of 39 people, including Braun and Big Machine Label Group CEO Scott Borchetta, will receive shares totaling about $161 million, based on the current exchange rate. Braun will get 462,380 ($86.2 million), while Borchetta will receive 166,537 ($31.1 million); and Grande and Bieber will each receive 53,557 shares, or almost $11.0 million apiece, the company filing states.
Balvin will get 21,423 shares ($4.1 million) and Lovato will receive 5,355 shares ($1.06 million) . The remaining 33 individuals listed are a mix of artists, executives and existing Ithaca shareholders.
This isn’t the first time artists have received shares from HYBE. When the company went public last October on the Korean stock exchange, the seven members of BTS each got shares valued at $8 million. But sources say the equity being awarded to Ithaca’s artists is coming out of Braun’s stake.
HYBE, the company behind powerhouse K-pop group BTS, said Friday (April 2) that it would pay $1.05 billion in cash and shares to acquire Ithaca Holdings, in a move designed to help the Korean company establish a strong U.S. presence in music and entertainment while also heightening its profile for American financial investors. According to terms of the deal, which is expected to close in about a month, Braun will join the board of HYBE and Borchetta will remain CEO of Big Machine Label Group.
The deal marries Big Hit Entertainment’s management company and labels with Ithaca’s entertainment holdings, which include the Big Machine label, the SB Projects management company and its interests in film and gaming through Mythos Studios and 100 Thieves Gaming.
Since going public in October, HYBE has leveraged the global sway of BTS to do a series of acquisitions of smaller labels, joint ventures and strategic partnerships with South Korean and U.S. labels, including with Universal Music Group. The deals have brought the company steadily closer to the U.S. market and to founder and CEO Bang Si-Hyuk’s goal to build HYBE into an international entertainment conglomerate.
In February, HYBE and Universal announced the Korean company would create a joint label with Geffen Records and co-produce an American Idol-like show to search for the next global K-pop boy band. The new label will be run out of Los Angeles, where HYBE plans to open a newly expanded U.S. office later this year.
For HYBE, Ithaca Holdings will relieve pressure on the company to diversify its artist roster beyond BTS, which pulled in 97% of the company’s sales in 2019, especially with required military service for the group’s oldest members still looming in two to three years.
The Ithaca Holdings deal was announced after the Korea Stock Exchange close of trading Friday, in which HYBE’s shares — which still trade under Big Hit Entertainment – closed at 243,000 KRW ($214.97) per share, giving the company a market capitalization of 8.5 trillion KRW ($7.27 billion), down slightly from the 8.7 trillion KRW valuation in its first day of trading on Oct. 15.
Besides paying with Big Hit shares, HYBE is using at least $100 million in debt to finance the deal, according to a HYBE filing. The stock shares likely come with a lock-up period, which means the recipients can’t trade them until a certain specified date.
Financial music executives said they were stunned by the Ithaca valuation, especially after Braun and Ithaca’s financial backer, the Carlyle Group, sold the crown jewel of the Big Machine labels — Taylor Swift’s catalog — to Shamrock Holdings for an estimated $300 million last November. That was 16 months after they bought Big Machine.
In the Big Machine acquisition, sources say Ithaca acquired 80% of the company in a deal that gave Big Machine about a $380 million valuation, leaving Borchetta and possibly some of his investors with a 20% stake that was apparently converted into shares of Ithaca.
Besides the Swift catalog, the Big Machine labels also will bring HYBE music from 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.
Previously, Billboard estimated that Big Machine averaged about $100 million in revenue over the period of 2015-18, with almost $40 million in earnings before interest, taxes, depreciation and amortization. But since the Swift catalog generated so much of the revenue, she also was responsible for an outsized profit-margin contribution — almost three-quarters of overall EBITDA, Billboard calculated.
Since Borchetta sold Big Machine to Ithaca, prices for music assets have escalated considerably, with Universal Music Group achieving a 30 times EBITDA multiple from its deal with Tencent Music Entertainment. UMG is expecting an even higher multiple from its planned stock offering later this year.
Considering those multiples, Billboard projected that at the top end that could mean a $950 million valuation for just Big Machine alone. But that was before Ithaca sold Swift’s catalog to Shamrock Holdings for about $300 million. Without the Swift catalog, Big Machine is worth half as much — anywhere from $300 million to $650 million. That means the rest of Ithaca’s holdings in technology, film and gaming have contributed a significant portion of Ithaca’s valuation.
Regardless, the Carlyle Group may emerge as the biggest winner in the deal. Ithaca Holdings and HYBE said Friday that Carlyle will sell its significant minority stake in Ithaca, after initially investing in the company in 2017.
Even before the Swift catalog was sold off, sources suggest Carlyle was the sole beneficiary of the $300 million that Shamrock paid for the Swift catalog.
With Big Machine and SB Holdings, HYBE will significantly enhance its U.S. holdings. And the combined management and label rosters of Bieber, BTS and Grande will give HYBE more firepower in the entertainment lifestyle marketplace.
The deal could also mean that HYBE is inheriting a potential Swift headache. The pop star expressed her displeasure last year upon learning that Braun owned her catalog through the Big Machine acquisition. She said she had wanted, but was never offered, a chance to buy back her catalog. She subsequently denounced the deal and all those involved in it. She continues to own her own publishing.