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EXECUTIVE SUMMARY

Q2 2020 Music Sector Wrap-Up

• While COVID-19 positively impacted the growth of music streaming – as it has with online video, ecommerce and digital health and wellness apps and technologies – there were three other significant events in the quarter that impacted the sector:
• First, Warner Music Group (WMG) priced its initial public offering at $25 per share for 77 million shares, raising a total of $1.925 billion at a ~$13 billion valuation
  • This was the largest IPO of the year thus far in terms of dollars, most of which went to selling shareholder / owner Access Industries
• Second, Goldman Sachs’ highly anticipated annual “Music in the Air” report was published in May
  • While some of the near-term forecasts for live music and adjacent sectors were hurt due to the pandemic, digital music growth remained strong and the long-term outlook on the general music industry remains bullish
  • Recent public market activity of music companies underpins the success of the category in Q2 despite adverse macroeconomic trends
• Third, Spotify’s (SPOT) market cap appreciated over 70% since January, and we expect to see the company use its equity to continue its aggressive M&A strategy
  • In May, the company announced an exclusive multi-year deal with “The Joe Rogan Experience” worth over $100 million
  • In June, the company announced podcast partnerships with Warner Bros / DC Comics and Kim Kardashian West – highlighting Spotify’s continued interest in the podcasting space
• Within our core music group, Music Publishers lead the public company pack, trading at 5.2x EV / 2020E Revenue and 17.9x EV / 2020E EBITDA
  • DSPs also had a strong quarter, trading at 4.5x EV / 2020E Revenue and 17.7x EV / 2020E EBITDA
• Strategics and financial sponsors are seeking increased exposure to this rapidly growing segment through high-profile audio financings
  • KKR’s investment in Artlist highlighted Q2 2020 activity
  • SoundCloud also announced a $75 million investment earlier in the year from Sirius XM to accelerate product development
• We expect this trend to continue as the digital audio market continues to evolve with top artists splintering across emerging platforms that leverage technology to create differentiated offerings