UMG IPO/Vivendi: not going for a song
Investors have growing confidence in €30bn valuation ascribed to music company
Vincent Bolloré’s Vivendi has hit the right notes to get investors bobbing along to his tune. The French media conglomerate said streaming revenues in the third quarter rebounded sharply and confirmed a public offering of its main asset Universal Music Group for 2022. Investors, who were previously sceptical, have growing confidence in the €30bn valuation ascribed to the world’s largest music company.
Digitisation was at first a curse rather than a blessing to music rights holders. Piracy hit CD sales. Now streaming — thanks to the convenience of services such as Spotify — has created a new business model.
A pandemic-induced slowdown earlier this year raised questions over whether streaming was as defensive as fans claimed. But UMG, reporting via Vivendi’s numbers, showed revenues have returned to growth of 23 per cent year on year. That supports the €30bn price tag implied by Vivendi’s sale of a one-tenth stake in UMG to China’s Tencent earlier this year.
The successful initial public offering of Warner Music is further proof of concept. The US group came to market over the summer for almost $16bn. Its current enterprise value is 21 times forward ebitda. UMG is widely expected to attain a premium to its smaller rival. Expect Tencent to take up its option for an additional 10 per cent of UMG.
The big question is what Mr Bolloré will do with the cash from selling shares in UMG. High valuations in video games may prohibit a deal. Moreover, Ubisoft, the studio behind Assassin’s Creed, rebuffed Vivendi in 2018. Bernstein’s Matti Littunen would like to see broadcaster Canal+ expand. He thinks the satellite operator has an edge in parts of Africa, where internet penetration is likely to remain low for years.
The UMG float should crystallise some value. Vivendi’s market capitalisation of some €28bn ascribes almost no worth to the group’s remaining assets. A current conglomerate discount of 19 per cent is above the long-run average of 10 per cent, says Barclays. Expect further interest in UMG to fine tune the discount.