The music mogul who acquired the back catalogues of stars from Beyoncé to Red Hot Chili Peppers and vowed to turn song royalties into an investment as dependable as gold faces eviction from his own company in a boardroom coup.
Merck Mercuriadis, a former manager of acts including Elton John, Iron Maiden, Guns N’ Roses and Beyoncé, set up London-listed Hipgnosis Songs Fund in 2018 with the pitch that the royalties of “evergreen” hits from famous artists were underexploited and ripe for canny investors to cash-in on amid the streaming revolution.
Mercuriadis has raised and spent about £1.5bn on dozens of music catalogues spanning tens of thousands of songs from artists including Blondie, Bon Jovi, Adele, Ed Sheeranand Neil Young.
But on Thursday, amid investor unrest over the halving of its share price and ahead of a crucial meeting next week, the fund said it had launched a “strategic review” and had considered serving notice on Mercuriadis’ investment advisory agreement.
If he is deposed, it would prove an embarrassing latest chapter for Mercuriadis, who cut a brash figure on floating the fund a year after a failed first attempt to do so.
A presentation slide Hipgnosis meant to entice eager investors was titled the “Livin’ on a Prayer case study” and charted a 153% increase in the revenue growth of Bon Jovi’s 37-year-old hit between 2013 and 2020 as streaming grew rapidly.
“Gold is something that only a few can buy,”Mercuriadis told the Guardian in 2020. “Whereas a £10 Spotify or a £10 Apple monthly subscription is something pretty much everyone can make.”
But at the time he also warned that he needed to move quickly to buy catalogues before rocketing prices, partly driven by Hipgnosis, which some critics argued overpaid to strike quick fire deals, stymied growth in a music industry version of the Netflix-fuelled content arms race in film and TV.
The son of a Greek footballer, Mercuriadis was born in Schefferville, a former mining town in northern Quebec, Canada. After growing up in Nova Scotia, he moved to London.
Now 60, he has spent 40 years in the music industry positioning himself as a champion of artists, something he learned working for Sir Richard Branson at Virgin Records in his first job in the 1980s.
“I can’t play the guitar, I can’t sing a song, I can’t write a song,” he has said. “What has given me a seat at the table is I take my responsibility of doing business very, very seriously. I make people believe in what I believe in.”
While this proved to be true while the going was good at Hipgnosis his prediction in 2020 that he might have just two years left to make a success proved prescient.
By mid-2021, as pandemic conditions supercharged music subscription, helping Hipgnosis to hit a peak market value of £1.3bn, the fund had run out of financial muscle to strike more deals.
Since then, returns on royalties have not matched lofty expectations, the cost of servicing its $600m (£494m) debt has increased as the low interest era ended, and Hipgnosis has been unable to raise funds because its share price has fallen.
Mercuriadis subsequently engineered a deal with the asset manager Blackstone, to potentially jointly fund new acquisitions, but none have been forthcoming.
In the summer, Sir Rod Stewart abandoned a lucrative deal to sell his song rights to Hipgnosis reportedly saying it was “not the right company to manage my song catalogue, career, or legacy”.
Its share price hit a record low of 64p on Monday after the company that values Hipgnosis’s portfolio “materially reduced” the expectation of the amount in royalties for tracks played between 2018 and 2022.
A move to sell almost a fifth of its portfolio to pay down $250m in debt and launch a $180m share buyback also sparked a backlash.
Investors balked at the heavily discounted $440m deal with a Blackstone fund, which is also advised and run by Mercuriadis. They are expected to vote to block the deal at a shareholder meeting next Thursday.
The same meeting will see shareholders asked to approve a continuation of the investment trust behind Hipgnosis for a further five years. A number of investors are expected to vote against continuation as they believe opposing will give them more power to restructure the business.
However, some analysts have said such a vote could result in the fund being liquidated. Meanwhile, the strategic review could ultimately result in the sale of Hipgnosis, which is valued at more than £900m.
Its board said it had looked at trying to make changes to the investment advisory agreement with Mercuriadis, which allows him to buy Hipgnosis’s entire portfolio of music rights if his contract is terminated, but he has refused.
The company said it had considered serving notice on Mercuriadis to terminate the agreement, but without a new investment adviser ready to take over, Hipgnosis would breach the terms of its debt facility.
Analysts at the US investment bank Stifel estimate that to pay off Mercuriadis could cost the company about £17m.
Mercuriadis argues that his advisory company remains “uniquely positioned” to drive value for investors because of its “deep relationship with the songwriters that make up the catalogue and our song management expertise”.
While his future, and that of the management team, hangs in the balance, the business still holds a portfolio of music valued at $2.8bn.
“Investors and management are fighting over the company, it is not that they don’t want it,” says Sachin Saggar, an analyst at Stifel. “There is clearly interest in the assets, there is value. There are still elements of gold dust.”
