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Global M&As

Deep inside the deal: HYBE-Ithaca merger

Apr 07, 2021 (Gmt+09:00)

BTS at the 2021 Grammy Awards' red carpet, participating online in March (Courtesy of HYBE)
BTS at the 2021 Grammy Awards' red carpet, participating online in March (Courtesy of HYBE)

The recent merger deal between two global entertainment powerhouses, HYBE Co. of South Korea and Ithaca Holdings of the US, will create a mega music label that will house BTS, Ariana Grande and Justin Bieber all under one roof.

BTS is arguably the most talked-about group in the world right now, whereas Justin Bieber has 62 million YouTube subscribers, the highest figure among global artists today.

How did these two labels, fiercely competing against each other in different corners of the world as well as in the digital realm, come together at the end?

The top management of HYBE and Ithaca say that their aligned vision to create new “possibilities” through an entertainment “synergy” on the global stage was decisive in closing the deal.

“The two companies will work closely together leveraging our proven track records of success, know-how, and expertise to create synergy, transcend borders and break down cultural barriers,” said HYBE Chairman and CEO Bang Si-hyuk on Apr. 2 in an official statement announcing the merger.

Graphics by Jerry Lee
Graphics by Jerry Lee

PROJECT ODYSSEY

Scott “Scooter” Braun, the chairman and CEO of Ithaca Holdings, had placed his company up for sale in the second half in 2020.

The news quickly reached HYBE and many other potential buyers, among which included Kevin Mayer, the former chief strategy officer at The Walt Disney Company.   

While at Disney, Mayer led a series of record-setting M&A deals, including the acquisitions of Pixar, Marvel Entertainment, 21st Century Fox and Lucasfilm.

To purchase one of the most valuable music labels in the world, he joined hands with the world’s largest private equity fund, Blackstone.

Ithaca had already been in discussions regarding the sale with several parties, including a global strategic investor, when HYBE made a move at the end of last year.

HYBE started late, but acted fast at full-scale. The company’s chief strategy officer Lee Jae-sang, an ex-consultant and a former global business manager at Google, created a task force composed solely of five top-level executives.  

The five members were all experts in large-scale deals, having closed numerous acquisitions, investments as well as the recent equity swap partnership with Naver Corp.

Chairman Bang also made personal contact with Scooter Braun. The two chief executives had known each other for quite some time, according to industry sources.

Outside the company, the global law firm Paul Hastings, South Korea’s largest law firm Kim & Chang and JP Morgan supported HYBE as the legal and the financial advisors.

The M&A project was internally dubbed Project Odyssey, named after Homer’s epic poem of the Greek hero Odysseus returning home to Ithaca.

Graphics by Jerry Lee
Graphics by Jerry Lee

With the full-fledged approach involving top internal resources as well as external advisors, HYBE finally brought Scooter Braun to the negotiating table, where he suggested more than 1 trillion won ($896 million) as the acquisition price.

“Considering that Ithaca’s last year's EBITDA was only $23.4 million, the price that Braun offered seemed rather difficult to take,” said an investment banking analyst.  

Bang is reported to have made up his mind immediately, however, as his priority was the expected synergy from the merger, and how much Ithaca earned was of secondary importance.

HYBE’s task force members, who had gone through all sorts of hardships last year with the spread of COVID-19, also shared Bang’s conviction that the merger would create a genuinely global label that would revolutionize the entertainment industry.

Another success factor that analysts highlight is HYBE’s strong confidence, newly obtained after posting 36% revenue growth last year despite almost zero contribution from concerts and fan meetings due to the pandemic.

BETTING ON MUTUAL SYNERGY

Industry experts also say that synergy was the topic that had been on Braun’s mind for a long time.

“This deal could close successfully only because HYBE is the label of BTS. HYBE’s competitors, such as SM Entertainment Co. and JYP Entertainment Inc., would have all failed to persuade Braun on synergy. Not even Samsung Electronics Co. would have won this deal,” said an industry source.

Others note that the two companies’ different regional focuses created a legitimate win-win partnership.

“Ithaca must have thought that HYBE could provide a guaranteed path to Asia and other markets outside the US and Europe. HYBE and BTS hold a truly global presence in the Americas, Europe, Oceania and Africa, regardless of region, ethnicity or political stance,” said an investment director at a Korean entertainment label.  

HYBE, on the other hand, can generate new revenue channels using Ithaca’s strong portfolio across the music, tech, film and gaming sectors.

Ithaca affiliates include not only SB Projects, the company that manages artists like Justin Bieber and Ariana Grande, but also Big Machine Label Group, an American independent record label specializing in country music, Drew House, a fashion brand, 100 Thieves, a lifestyle brand and gaming organization, as well as more than 60 other companies and investment firms.

HYBE expects to see more of BTS on Ithaca’s channels, creating new revenue streams from its intellectual property. Ithaca also has a long-standing partnership with Amazon and Netflix, to which it supplies the concert and documentary clips of its artists.

MERGER PROSPECTS

Analysts say that HYBE’s fan community platform Weverse will be the biggest beneficiary of the merger. Held 51% by HYBE and 49% by Naver, the platform specializes in hosting multimedia content and artist-to-fan communications for artists of HYBE, such as BTS, as well as of competitor labels, like Sunmi of ABYSS Company.

The Weverse platform specializes in communication between artists and fans (Courtesy of Weverse)
The Weverse platform specializes in communication between artists and fans (Courtesy of Weverse)

As Weverse is getting bigger, HYBE has started to host more artists from outside the company in addition to its own.

The next in line to join Weverse is YG’s Blackpink, which has the second-largest YouTube subscriber base among global musicians with 59.8 million, closely trailing Justin Bieber’s 62 million subscribers.

HYBE is expected to add Ithaca’s artists, including Justin Bieber and Ariana Grande, to the Weverse platform, further fueling its growth.

The list of artists on Weverse (courtesy of Weverse)
The list of artists on Weverse (courtesy of Weverse)

“Weverse is creating a dependence issue for HYBE's competitor labels. Weverse is an open platform where any artist and fan can join to communicate, but it is also true that HYBE has ownership over it. On Weverse, HYBE can collect data of competitor artists in the areas of age, gender, consumption patterns, core fan base and more,” said an entertainment industry analyst.

“From the competitors’ view, the expected growth of Weverse from this merger will aggravate the issue of their dependence on the HYBE platform,” the analyst added.

Wevese has 5 million monthly active users (MAU) as of end-2020.

Write to Jun-ho Cha at chacha@hankyung.com

Daniel Cho edited this article.

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