They are trying to twist this for their own purposes.”

Merck Mercuriadis’ eyes flash with exasperation. Over years spent managing the careers of uncompromising artists like Elton John, Beyoncé and Guns N’ Roses, the 57-year-old music industry veteran has perfected a demeanor of cordial unflappability. Yet a question skeptics have asked about his 4-year-old company, Hipgnosis, has gotten under his skin.

Hipgnosis has spent almost $2 billion to date snapping up 129 publishing catalogs, the work of everyone from hip-hop/R&B producer Ernest Dion “No I.D.” Wilson to  Neil Young to Al Green’s drummer Al Jackson. These are the iconic creative forces behind the great music that Mercuriadis has dedicated his life to, and his company’s purchases have fueled an explosion of music publishing valuations. In theory, a rising tide lifts all ships, but the question irritating Mercuriadis right now is: Who owns those ships? Or, to put it another way, once songwriters sell their work to Hipgnosis, will they continue to benefit from the ways Mercuriadis says he’ll reshape the industry?

He has an answer to this, as he does to most everything. His response to the first question of a mid-February interview with Billboard clocks in at just over 20 minutes, and an attempt to interject makes him pause just long enough to grin and say, “I appreciate that I’m monologuing you.” Mercuriadis radiates an affable charisma, and he’s a steamroller in interviews. He talks about Hipgnosis as a disruptive force in answers that seem as inspiring — and as well-rehearsed — as a political stump speech.

Mercuriadis shuttles between a home in London’s Notting Hill (where he and his wife, Sue, have three cats) and a light-filled house in the Hollywood Hills (where they have three dogs, one of whom, a corgi, has his own Instagram, @louismercuriadis). The Quebec-born son of a retired Greek professional soccer player, he radiates both power and a hard-won calm. Speaking with Billboard from Los Angeles over Zoom, he’s dressed, as always, in black — in this case, a sweatshirt — and appears before black-and-white digital wallpaper patterned with the company logo, an upside-down elephant with swirled, hypnotized eyes.

Mercuriadis is explaining his two-pronged vision for Hipgnosis, which he founded in 2017 and took public on the London Stock Exchange (LSE) in July 2018. Profits were up 917% in its fiscal year ended Sept. 30, 2020, and the company now has a market capitalization of $1.8 billion. As of the end of January, 389 investors own shares, including Aviva Investors, Investec Wealth & Investment, AXA Equitable and — Mercuriadis finds this as amusing as most people would — the Church of England’s fund manager, CCLA. And he suggests that more U.S. investment is imminent.

The central part of Mercuriadis’ vision is “song management,” the term he much prefers to music publishing. He believes that Hipgnosis can manage the compositions it owns better than most established companies because administrators at the major publishers manage on average “20,000 songs per person, whereas we operate on 500 to 1,000 songs per person.” That means Hipgnosis can pay more attention to each and every song it owns — as opposed to just proven hits — promote them more effectively and generate more revenue from placements in films, TV shows and other video content. Mercuriadis thinks that the Hipgnosis model, where companies optimize revenue from portfolios of 150,000 or so songs, is the future. As of December, the company owned 61,000.

Synch placements can only drive so much revenue though. And the second part of Mercuriadis’ vision, about increasing mechanical and public performance royalties, is less specific and framed in more idealistic terms. “We want to make money for our shareholders and ourselves, but I also have an ulterior motive,” he says. “I want to change where the songwriter sits in the economic equation.” At a time when singles drive a resurgent music industry, the teams of songwriters that create them are often left to divvy up, he calculates, just 11.5 cents of every dollar a recording generates.

Mercuriadis very much wants to change this, though it’s more complicated than he makes it seem. While labels and artists who own their own recordings can negotiate with on-demand streaming services in a free market, publishers and songwriters are constrained by a web of regulations. Mercuriadis suggests that this could be addressed by collective action, in the form of a songwriters guild, but it might take years for such a group to gain as much influence in the United States as existing organizations like ASCAP or the National Music Publishers’ Association (NMPA) — none of which has managed to change the regulatory structure that denies publishing rights holders the negotiating leverage that labels have.

***

If one of Mercuriadis’ goals is to boost the fortunes of songwriters, he has already succeeded — beyond their wildest dreams. Over the past two years, the value of song copyrights has soared to record highs. For blue-chip catalogs, buyers are paying upwards of 20 times net publisher’s share (NPS) — multiples of an asset’s average annual gross profits — essentially double what they were a decade ago. Much of this is fueled by the growth of streaming, as well as general optimism about the music business. But Hipgnosis — which as of December had acquired 129 song catalogs for a total of $1.75 billion — is the primary factor that’s driving prices to new highs, according to more than 15 music publishing executives, lawyers and consultants who negotiate such deals.

Hipgnosis has raised the stakes for new companies and majors alike — and the bull market it has supercharged has attracted the attention of institutional investors like KKR & Co. (which made its first music acquisition since 2013 when it bought a majority stake in Ryan Tedder’s catalog), Eldridge (which is a part owner of Billboard) and Vine Alternative Investments. This may or may not be good for Hipgnosis, which can position itself as a leader among these new entrants but now also faces more competition. But it has certainly been great for songwriters and other rights holders.

“In the old days, if we wanted to shop a catalog, there might be two to four publishers willing to make an offer,” says Jordan Keller, a founding partner of Nashville-based entertainment law firm Keller Turner Andrews & Ghanem, which represents clients in rights sales. “Now when we go to market, we have 10 or 15 companies making attractive, Hipgnosis-style offers. It’s a new paradigm that Merck should take credit for creating.”

Mercuriadis points to a Jan. 21 prospectus issued by the company that indicates the average multiple paid by Hipgnosis is a moderate 15.63. Lower multiples imply that Mercuriadis is making fiscally responsible deals for music publishing assets — which shareholders like — and he claims his reputation for driving them skyward is being pumped up by competitors who lost catalogs to Hipgnosis. “They were all running around saying, ‘Oh, he’s paying 25 times,’ because they had to give their shareholders an explanation,” he says, adding that they aren’t factoring in the many private deals that he does.

Traditional publishers don’t buy this explanation and maintain that he’s overpaying. Some offer barbed criticism anonymously. (A sample, from an independent publishing executive: “His whole spiel about song management is bullshit.”) But no one can dispute that prices are rising, to the benefit of creators, or that Hipgnosis is winning plum assets, among them Kobalt Music Copyrights Fund 1 and the Big Deal music publishing company, both owners of multiple catalogs, as well as the catalogs of Justin Bieber collaborator Jason “Poo Bear” Boyd, Chrissie Hynde, Lindsey Buckingham, Shakira, No I.D. and Young.

So far, Mercuriadis says, Hipgnosis’ song management strategy is working. “Warner Chappell did $657 million in business on 1.4 million songs, and we did $85 million on 13,000 songs at the time,” says Mercuriadis, comparing Hipgnosis’ numbers from its fiscal year ended March 31 with those Warner Chappell reported from its previous fiscal year. “So we did 12% of their business on less than 1% of the amount of their songs.” He points out that Hipgnosis generated $6,280 in revenue per song it owns, while Warner Chappell brought in $470 per song. “Not because we’re smarter or better than they are,” he says, “but because we’re focused purely on managing these great songs.”

Actually, Mercuriadis is focused more on growth at the moment, and his catalog-buying spree is what’s been driving Hipgnosis revenue. For the fiscal year ended March 31, 2020, Hipgnosis’ growth through acquisitions increased profits $31.2 million — a hefty 917% year-to-year increase — on total revenue that grew eightfold over the previous year to $81.3 million. For the first six months of the current fiscal year, Hipgnosis shows net profits of $12.7 million on $62.1 million in revenue. If that pace continues, the company will more than double its revenue for the full year, given the flurry of acquisitions that Hipgnosis has made since Sept. 30, 2020. Its robust financials also led to the company being added to the Financial Times Stock Exchange 250, one of the U.K.-equivalent indexes to the S&P 500.

Mercuriadis does not earn a salary from Hipgnosis, and he does not have much skin in the game. Hipgnosis is technically run by an investment adviser, The Family (Music) Ltd., where he is the CEO and a director. (His three daughters are also directors.) According to financial statements, Family (Music) is paid an advisory fee of 1% of the average annual market capitalization of Hipgnosis’ portfolio up to $339.4 million; 0.9% from $339.5 million to $678.9 million, and 0.9% over that. So far, Family (Music) has received $12.1 million, and, according to one music publishing executive, that fee “incentivizes Merck to build a large catalog as quickly as possible.”

Family (Music) is also eligible for a 1% performance fee, which is tied to share price through a different formula and paid in Hipgnosis shares. For its 2019 performance, Family (Music) received shares worth $559,000. Mercuriadis says he purchased $1.32 million worth (at the time) of shares that are valued at close to $1.4 million today. (He continues to hold those shares.)

Last year, Hipgnosis and Family’s staff grew from 41 to 78 with the Big Deal acquisition, in which Hipgnosis acquired the indie publisher’s operations along with its catalog. Sources who know Big Deal’s founder and president, publishing veteran Kenny MacPherson, say he and his team will bolster Hipgnosis’ song management and administration efforts.

Family’s executives also include former Virgin Records U.K. head Ted Cockle, who is president; former Swedish House Mafia manager Amy Thomson, chief catalog officer; Nick Jarjour, global head of song management; and Tom Stingemore, who heads synchronization efforts.

Traditional publishers spend more time and money developing talent, however, while Hipgnosis tends to buy blue-chip catalogs — for a premium. And some of Hipgnosis’ rivals, as well as a few financial analysts, are now starting to question how the company values the assets that it acquired and how it calculates the multiples that it discloses in its financial reports, which are significantly lower than those estimated by competitors that have bid for the same catalogs. In other words: whether Hipgnosis’ accounting methods are valuing assets too high and purchase prices too low. A January analyst report issued by the investment bank Stifel Financial downgraded Hipgnosis from “buy” to “neutral” and raised questions about the math used by the company’s independent valuer, Massarsky Consulting.

Mercuriadis says Hipgnosis’ financial advisers “spent hours addressing Stifel’s questions, and that was not reflected” in the bank’s report. He’s not fazed though: He expects criticism to grow as his company does and predicts a wave of stories “focusing on, ‘Hipgnosis: Is it too good to be true?’ ” All the criticism stems from rivals attempting “to undermine what we are doing,” says Mercuriadis. “Those individuals are concerned that we are a threat.”

Some are not above getting personal. Industry executives interviewed for this story pointed Billboard to a handful of civil lawsuits and federal and California state tax liens filed against him personally between 2009 and 2015, for more than $700,000.

The tone of Mercuriadis’ response seems more weary than anything else.  He says all of the claims have been dropped or settled, and in the run-up to Hipgnosis going public, “our brokers, bankers and investors did the normal due diligence to ensure there were no issues that concerned them.”

“I’m quickly learning that you can’t change where the songwriter sits in the economic equation without upsetting some members of the old guard who will make every attempt to discredit the disrupters — even when there is no relevance,” he says. Referring to his late 2006 exit from the foundering Sanctuary, he recalls, “I walked away with nothing, after having served the company for 20 years. It was important to do this and keep my integrity  intact with both the creative community and shareholders who were also affected.

“In rebuilding my career from scratch and prioritizing the responsibility of looking after my family, there were elements of my personal affairs that were not perfect,” he continues. “I’m not the first person that built something worth building that this has happened to. I won’t be the last, and it’s certainly not relevant to who I am.”

***

Hipgnosis is the first publicly traded company to invest solely in music publishing, but Mercuriadis isn’t the first industry executive to bet that songs are undervalued. In 1985, Michael Jackson and his attorney John Branca acquired ATV Music (which included Northern Songs, most of John Lennon and Paul McCartney’s Beatles tunes) for $47.5 million — an investment that paid off well when, 10 years later, they sold a 50% stake in ATV to Sony for double that amount. The publishing market was also spurred by a 2006 change to the tax code that made sale income a capital gain. Last year, the prospect that Joe Biden’s administration might raise capital gains taxes seems to have motivated some sellers, who can now choose from among 20 buyers.

What sets Mercuriadis apart from the others is his wallet and his mouth. Hipgnosis has the deep pockets of a public company, and he has the connections to find out who’s looking to sell. Some of his relationships, and credibility, come from his previous management of songwriters like The-Dream and Diane Warren. (He continues to manage Nile Rodgers, who is part of Hipgnosis’ advisory board.) And it helps that his passion for a wide range of music — from foundational 1960s giants to punk to hip-hop — is palpable. In 2005, he told Billboard that he never traveled without his iPod, plus an external hard drive with 10,000 albums from his collection of 50,000.

This also isn’t Mercuriadis’ first time trying to reinvent the music business. In the early 2000s, as an executive at Sanctuary Group, he was one of the architects of the 360 model that let companies market, and take a share of, artists’ recordings, publishing, touring and merchandise. “Merck was very much a big-picture thinker,” says a former Sanctuary executive.

Mercuriadis seems to take some pleasure in casting himself as a disrupter. Universal Music Group chairman/CEO Lucian Grainge “might have a dartboard in his office with a picture of me on it,” he says with a sly smile. He throws his share of darts, too. He often says that the major publishing companies, whose leaders he praises, don’t have the freedom to advocate for higher royalty rates for songwriters. (Suffice it to say, this has gotten back to them, and they do not appreciate being disparaged.)

“Jody and Big Jon, Guy and Carianne don’t get to fight for songwriters,” he says, referring to Jody Gerson and Jon Platt, the CEOs of Universal Music Publishing Group and Sony/ATV, respectively, and Guy Moot and Carianne Marshall, the CEO and COO of Warner Chappell. That’s because it’s not in the best interests of Sony, Universal or Warner. They want to push as much of the money that’s coming through our business to recorded music, at the expense of the songwriter” — since he estimates the majors make 50 cents of every dollar in recorded-music revenue.

That’s where Mercuriadis’ vision comes in. He says he’s planning to launch a songwriters guild this summer that “will include not only the majority of songwriters who have their catalogs on Hipgnosis but also great songwriters from across the community.” The idea is that Hipgnosis and songwriters can win together: Mercuriadis says over Zoom that he named the company that serves as Hipgnosis’ investment adviser Family (Music) Ltd., not just because he and his daughters are its directors, “but because I want my songwriters to see it as their family.”

Except that songwriters who have sold their copyrights to Hipgnosis might not be all that motivated to boost payouts that they will no longer share in. When it’s suggested to Mercuriadis that he and his shareholders, rather than songwriters, will sop up the gravy of any fattened royalty streams, that’s when his exasperation shows.

“The people who are telling you, ‘He’s sopping up the gravy,’ are the same people telling you that I’m paying songwriters too much for their songs,” he says. “So which do they want?” He starts to say that he suspects this critique is coming from “whatever that dummy’s name is at …” then catches himself. In a moment, his chill demeanor returns.

Mercuriadis says songwriters do benefit if their songs perform well after they’re acquired. If a catalog grows in value, “at the end of year three and year four, the songwriter is going to get a bonus. If I’m right about my thesis,” he says, “I want them to be participants.”

Improving the fortunes of songwriters the way he envisions would make Mercuriadis as transformative a figure as Irving Azoff and David Geffen who, nearly 50 years ago, won power and riches for performing artists. But while Azoff and Geffen negotiated on behalf of top artists, in a free market, the publishing business often involves rates set for all rights holders, in a way that’s highly regulated. In the United States, for example, the Copyright Royalty Board, a three-judge group, sets the mechanical royalties paid by on-demand streaming services like Spotify, while antitrust consent decrees constrain performing rights organizations ASCAP and BMI.

Any serious effort to change that would be incredibly expensive. Over the last few years, the NMPA spent more than $15 million on rate-court litigation and other expenses to raise the royalties that streaming services pay publishers and songwriters. After publishers won from the CRB in 2018 a 44% increase over a four-year period, the U.S. Court of Appeals overturned that ruling — which means that rights holders will have to spend millions more. And that’s just rate-setting within the current legal framework — not lobbying to change it, which some of the biggest technology companies in the world would fight.

Asked about the likelihood that this will change, Mercuriadis responds that Hipgnosis is already more successful than most industry executives could have imagined. “We now have a $2 billion fund that has outperformed the index by 40% over the last 30 months and given our shareholders a 41.9% total return on their investment,” he says. “If I can do that, we can do this, particularly with the greatest songwriters in the world leading the charge.”

Mercuriadis says his first and immediate goal “is to ensure that no discussion or negotiation — from this moment on — can take place that affects how a songwriter is paid without the songwriter at the table. Once the songwriting community has an opportunity to be clear about what it expects in a fair and equitable manner business will follow,” he explains. “Without the song we have no music business.”

Asked if he sees any connection between the rising catalog prices on the free market and the royalty rates determined by regulators, Mercuriadis says soaring prices “are certainly being used in the advocacy for maintaining capital gains on behalf of songwriters” through the work of Nashville Songwriters Association International executive director Bart Herbison and senior director of operations Jennifer Turnbow. “They are demonstrating to Congress that the U.S. Treasury is far better off as a result of these deals”  He adds: “I do believe that [the next CRB hearing regarding writers’ [mechanical] royalties, CRB will also take note of Hipgnosis having established songs as an asset class that rivals gold and oil for investment just as the [Digital, Culture, Media and Sport Committee] hearings in the U.K. Parliament have.” Hipgnosis will not participate in the CRB determination – it’s being represented by the NMPA – but its power and its ownership of songwriters’ shares give it power in markets outside the United States.

***

Mercuriadis ascribes some of the talk about Hipgnosis to rivals who have lost out to him on deals, and there’s at least some truth to this. Within the past few months, some of them have also begun pointing out that Hipgnosis isn’t entirely transparent about how it values its assets and calculates the multiples it pays for them. They also say that if Hipgnosis is producing revenue increases through song management, its financials need to distinguish between organic growth and growth through acquisition. Currently, it reports only overall growth.

Stifel and another report issued by analysts for investment bank Shot Tower Capital brought these issues to the fore in January, when Stifel downgraded Hipgnosis to “neutral” because it was “uncomfortable” with the methodologies the fund uses to value assets.

Discounted cash flow is widely used in business to estimate the present-day value of an investment based on how much money it will generate in the future. The Stifel report said Hipgnosis’ independent valuer, Massarsky Consulting, had dropped the 9% rate it had previously used in its discounted cash flow model to 8.5% for the fund’s six-month results ending Sept. 30, 2020. That half-point decrease, the report observed, raised the net asset value (NAV) of the fund’s acquisitions. (The lower the discount rate used, the higher the NAV.) As a result, the report said, catalogs that Hipgnosis had just recently acquired showed increases in value, “despite the [investment] manager not having had sufficient time to add value, or [for] underlying market assumptions to have materially changed.” The report also claimed that, essentially, all of the catalogs Hipgnosis acquired were bought at a price that was lower than the discounted cash flow valuation provided by Massarsky, which led to a “positive ‘bump’ when acquired.”

In an interview with The Daily Telegraph in London, Mercuriadis called the report “stupid,” as well as “naive and obtuse,” and Massarsky’s response to Stifel, a copy of which was obtained by Billboard, said its analysis was a “mischaracterization” of Hipgnosis’ valuation process. The lower percentage was appropriate, Massarsky said, because the Federal Reserve had dropped its fund rate 1.5 percentage points, from 1.59% to 0.09%, and Massarsky had applied a corresponding decrease that was only one-third of that.

The report also questioned whether Hipgnosis’ revenue accruals are too aggressive. Generally accepted accounting principles call for sales to be reported on an accrual basis — when the service has been provided, as opposed to when payment is received. (When music publishers receive play reports, for example, they estimate the revenue that they will eventually receive.) Hipgnosis isn’t the only music publisher that reports income on an accrual basis; Sony Music Publishing and Warner Chappell do so as well. But they have decades of experience in projecting accruals, and industry sources say they’re skeptical that Hipgnosis can do this as well as they do. The Stifel report estimates that as much as 40% of Hipgnosis’ accrued income might not be collected within a year — and that “there is a risk the [billing] estimate is wrong and then [some of] that cash is not ultimately collectable.”

“We disagree,” says Mercuriadis. “We use prior-period statements as the basis of this accrual for both publishers and performance rights organizations, and to be conservative, we do not accrue for the full lag between earnings and distributions, which can be up to 18 months.” He explains that all accruals are expected to be received within a 12-month period. “They are therefore accurate and subject to a high degree of testing by Hipgnosis’ auditor, PricewaterhouseCoopers, on a semiannual basis.”

The Shot Tower report was distributed only to clients, but sources who have read it say it focuses on yet another issue that bothers Hipgnosis’ rivals: how the company calculates the average multiples it has paid for catalogs. So far, Hipgnosis has reported the net publisher’s share and the price it paid for just one deal — its acquisition of the Kobalt Songs 1 catalog for $323 million, which equates to a multiple of 18.3 times NPS. Although publishers who bid against Hipgnosis usually have a sense of what it pays for an acquisition, they say the company’s refusal to give more information on the actual multiples it pays for assets is another sign of the fund’s lack of transparency.

Readers of the Shot Tower report say it questioned the way in which Hipgnosis uses right-to-income to calculate its multiples. Right-to-income is royalty revenue paid to the seller by licensees in the period immediately preceding the buyer closing on the deal. That revenue is turned over to the buyer at the closing, which then pays songwriter royalties from that revenue.

Hipgnosis’ latest financial report indicates it uses right-to-income in calculating multiples but gives no details as to how it figures into the calculations. According to sources, the Shot Tower report says that if right-to-income was included as revenue — which is how it is categorized elsewhere in Hipgnosis’ year-end financials — it would produce a lower multiple. Mercuriadis says that Shot Tower’s conjecture was erroneous and it is revisiting its analysis after Hipgnosis provided additional information to the investment bank.

Some music publishing sources still suspect that Hipgnosis is reporting lower-than-actual multiples. When Hipgnosis takes part in an auction, rival publishers say the catalogs tend to sell for close to 20 times NPS, a significant increase from the early 2010s, when multiples of 12 were typical. In a December interview with The New York Times, Mercuriadis said that 22 was the highest multiple he has paid for a catalog.

Sources Billboard spoke with find it odd, then, that Hipgnosis’ Jan. 21 prospectus states that it has paid an average multiple of 15.63 times NPS for its acquisitions. They say that number seems low, given the steep rise in multiples overall for song catalogs last year. They estimate, for example, that Mercuriadis paid a multiple of 30 times NPS — which translates to upwards of $45 million — for the 50% of the Neil Young catalog that Hipgnosis acquired.

Mercuriadis says such estimates are based on incomplete information. He tells Billboard that only 30% percent of Hipgnosis’ assets were acquired in a bidding process — the other 70% were private deals, which competitors have no visibility into. “They didn’t want to have to tell their shareholders, ‘Well, he’s able to make these investments because he’s got a better relationship with the songwriting community.’ ”

As for the actual prices he has paid, Mercuriadis says he takes transparency seriously but also feels the need to protect the financial privacy of the songwriters with whom he’s dealing, most of whom are loathe to broadcast that they’ve sold the rights to their life’s work. He adds, however, that he is looking for a solution.

***

For the moment, music publishing assets look like good bets. They appeal to investors as stable income streams that also have the potential to appreciate in value. Hipgnosis targets a dividend payout of 5% of capitalization, an attractive return compared with municipal and government bonds — the traditional options for conservative, income-oriented investors — now that interest rates are close to zero in the United States and in negative territory in some other countries.

Under these conditions, investors have been more than willing to finance Mercuriadis’ acquisition spree, and the fund’s resulting growth has, in turn, fueled its stock price. If interest rates start trending upwards though, institutional investors could move money back into treasury bills and Hipgnosis’ buying power will shrink. (At that point, share prices would be tied to operations, which could be an acid test for the company’s song management.)

Some observers wonder if investors are cooling on Hipgnosis even before that. In January, the company indicated that it was gearing up for another year of aggressive acquisitions by announcing that J.P. Morgan Chase, the lead bank for its debt financing, was expanding Hipgnosis’ revolving credit from $400 million to $600 million. And the company’s Jan. 21 prospectus revealed plans to issue 1.5 billion new shares over the next 12 months. If those are sold at the planned price of $1.68, those shares could potentially raise $2.52 billion. The fund has raised $1.57 billion through its previous offerings.

On Feb. 5, up to 500 million of those 1.5 billion shares were made available for sale — and as of Feb. 8, an underwhelming 62 million had been purchased. One music publishing source deems the result “a turd in the punch bowl” and speculates that Mercuriadis’ undiplomatic response to the Stifel report in The Daily Telegraph may have scared off some investors. “They don’t like CEOs that sound impulsive,” says the source.

Mercuriadis says the February offering was a success, adding that his comments in The Daily Telegraph “may have reflected passion, but they weren’t angry or impulsive. They were, in fact, carefully considered and factually correct. What we are trying to do for the songwriting community is incredibly important to me, and I won’t stand back when it is being undermined.”

There are other possible explanations for the less-than-enthusiastic response to the February offering. Some investors like to hang back and monitor a stock’s performance before making a move. Others may want to digest the financial analyses and recent spate of media reports on Hipgnosis or wait for its upcoming fiscal report, which will be released after March 30. It’s also not unusual for a company’s investment bank — Hipgnosis has three: J.P. Morgan Cazenove (a U.K. subsidiary of J.P. Morgan), N+1 Singer and RBC Capital — to continue selling a stock offering beyond the initial target date. In November, for example, Round Hill Music, another heavyweight in the music publishing assets sector that rode Hipgnosis’ coattails to its own initial public offering on the LSE, sold 328 million shares of a 375 million-share offering in a two-stage process.

When Round Hill’s IPO is viewed in conjunction with Hipgnosis’ latest, as well as an earlier offering in September that missed its $329 million target by $79 million, some industry observers say it may signal a development that neither investors nor songwriters will want to hear: that the market for music publishing assets may be nearing its saturation point.

Mercuriadis allows that the coronavirus pandemic “and its economic implications have undoubtedly had a dampening effect on all equity markets.” For that reason, he says, “We specifically did not have a target for the first raise of the year.”

But he also hints that more U.S investment is on the horizon — Hipgnosis currently has a “tiny bit,” he says — although he declines to discuss whether he’s talking about a U.S. stock offering.  He will only say, “We have all of these best-in-class U.S. institutions that want to put money in as well. Up to this point, I haven’t taken that,” he adds, then says, “This will result in very significant investment.”

Whatever happens, Hipgnosis is unlikely to run into any serious financial problems, unless it takes on too much debt. A stand-alone music publishing company has never filed for Chapter 11, according to industry veterans. If the fund has trouble meeting its target dividends, it simply needs to adjust its annual payouts. That could hurt stockholders, but not songwriters. Even if Hipgnosis did, hypothetically, take on too much debt, Mercuriadis could sell some catalogs, which some publishing companies have done in the past when they needed cash.

For all the hysteria and hand-wringing Mercuriadis has sparked in the publishing world, even the worst-case scenario might not be so bad: Hipgnosis could be wound down and liquidated if the board of directors or Family (Music) decides to terminate its relationship with the fund. At which point, the investment advisory agreement states that Family (Music) has the “unconditional right” to purchase the fund’s “portfolio” of songs, up to six months after the termination date. It would have to pay a purchase price that is higher than fair market value or market capitalization, whichever is higher, or any price offered by a credible third party. If Family (Music) is terminated with cause — the agreement lists fraud, negligence and willful misconduct as examples — that unconditional right would be negated.

Says Mercuriadis: “This is not a scenario that anyone is contemplating.”

***

Is Mercuriadis a ­genius or a genius salesman? The disrupter he styles himself as, or the huckster others grouse about? Time will tell, but for the moment, this much is clear: He’s a force. And he has made music publishing something that even those who loved it weren’t sure it ever would be: not only the talk of the business but sexy, and suddenly the focus of mainstream media coverage.

In doing so, he himself has become the talk of the business. Some sources complain that Mercuriadis has left sellers hanging for months before closing a deal, if the deal closes at all. “Mercuriadis is charismatic, talks a great game, and he now has the reputation that he spends the most — so that has put him on top of every seller’s list,” says one adviser to sellers. But, he tells his clients, “Until you get the money, it’s not a real offer,” because Mercuriadis starts numerous deals that he doesn’t close.

Nashville entertainment attorney Keller disagrees. Hipgnosis, he says,“is very business-like. They move quickly to engage, the deals close and the clients get paid. Promises made are promises kept.”

Sellers who accept an offer from Hipgnosis sign a letter of intent that gives Hipgnosis an exclusive window — Mercuriadis says it can last anywhere from 30 days to two years — to pull together the financing. Billboard estimates the company has about $150 million on hand to continue making acquisitions, but that’s well short of the $1 billion worth of catalog deals that Mercuriadis says he has negotiated. During the length of this exclusivity period, sellers are prohibited from talking to other buyers, and two sources say that Mercuriadis has reappeared to negotiate a lower price than originally agreed upon.

It’s hard to fault a businessman for renegotiating terms, and Mercuriadis says that there have been only four deals that he has sought to renegotiate and another four where he walked away. “In almost every one of those cases,” he says, “the issue was the seller’s representative presenting what they thought were net revenues when they were in fact gross revenues.” He admits that with some acquisitions, “the money is in the bank in 30 days.” With others, it can take months because of the due diligence required of Hipgnosis, including independent valuations, which can take time to complete. He points to a deal for Jimmy Iovine’s royalty income stream as a producer as one that took over a year because “there was so much information from so many different sources.”

If big-name acquisitions like that keep stacking up and the Hipgnosis portfolio continues to grow at its current pace, questions about Mercuriadis’ vision may simply cease to matter. According to one independent publisher, his musical acumen is evident in the songs and catalogs that Hipgnosis has acquired — which, despite the background noise, shows that Mercuriadis is amassing a portfolio with the potential for long-term growth.

“Merck is either insane or a genius,” says the publisher. “Either way, I’d love to be able to work the catalogs he is amassing.”

Additional reporting by Frank DiGiacomo.

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What’s In The Vault?

By the end of 2020, Hipgnosis had acquired 129 song catalogs containing over 60,000 tunes. Here are just a few of them.

Date Acquired: November 2018

Size: 100% of publishing and writer’s share in 214 songs

Highlights: Several Justin Bieber or Bieber-affiliated hits, including “What Do You Mean?,” “Company” and “Where Are Ü Now” from his 2015 Purpose album, as well as the English version of Luis Fonsi and Daddy Yankee’s “Despacito”

 

Date Acquired: September 2020

Size: 100% of publishing and writer’s share in 164 songs

Highlights: Pretenders hits and fan favorites “Brass in Pocket,” “Talk of the Town,” “2000 Miles,” “Message of Love,” “Back on the Chain Gang” and “I’ll Stand by You”

 

Date Acquired: August 2020

Size: 100% of publishing plus writer’s and producer’s shares in 273 songs

Highlights: “Run This Town” by JAY-Z featuring Kanye West and Rihanna, “Holy Grail” by JAY-Z featuring Justin Timberlake, West’s “Black Skinhead” and Ed Sheeran’s “Kiss Me”

 

Date Acquired: December 2020 (announced 2021)

Size: Worldwide producing royalties for 259 songs and film producer royalties for 8 Mile and Get Rich or Die Tryin’

Highlights: Royalties on some of rock’s most venerated ­albums, including Tom Petty’s Damn the Torpedoes (“Refugee”), Stevie Nicks’ Bella Donna (“Edge of Seventeen”) and Dire Straits’ Making Movies

 

Date Acquired: August 2020

Size: 100% of writer’s share and neighboring rights in 197 songs

Highlights: Pop classics from Blondie’s catalog, including “Heart of Glass,” “Rapture,” “Call Me,” “The Tide Is High,” “Dreaming,” “One Way or Another” and “X-Offender”

 

Date Acquired: December 2020 (announced 2021)

Size: 50% of publishing and writer’s share in 1,180 songs

Highlights: Six decades of hits and incisive songwriting, including “Heart of Gold,” “Powderfinger,” “Like a Hurricane,” “Rockin’ in the Free World” and “My My, Hey Hey (Out of the Blue)”

A version of this article originally appeared in the Feb. 20, 2021, issue of Billboard.