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Scooter Braun (left) and Justin Bieber.
- Talent manager Scooter Braun and his company Ithaca Holdings announced Sunday that it had acquired Big Machine Labels Group, a record label company that owns music from Rascal Flatts to Taylor Swift.
- Private equity giant The Carlyle Group is supporting the transaction as a minority owner of Ithaca Holdings.
- Jay Sammons, a Carlyle executive who also sits on the board of Ithaca Holdings, said his involvement in the deal is emblematic of how he treats investments across the consumer, media and retail industries.
- To consummate deals, he has relied on a "founder-led approach," which has meant working closely with top executives and not seizing control of their business, as is typical in private equity.
To get its hands into the music and entertainment industry, private equity firm The Carlyle Group has been willing to do something somewhat uncharacteristic to private equity: settle for minority ownership as it seeks to build relationships with executives.
That's why Carlyle, with more than $220 billion assets under management, said that it's "supporting" a deal in which Scooter Braun, the talent manager behind Justin Bieber, Ariana Grande and Kanye West, along with his company Ithaca Holdings, had acquired record label Big Machine Label Group, which owns music from stars like Rascal Flatts and Taylor Swift.
"Not every private equity firm, I would say, is willing to do that," said Jay Sammons, head of consumer, media and retail at Carlyle, of minority investments, in which an investor controls less than 50% of a company. Such deals have been growing in popularity over the last 10 years, though they're still less common than full-on buyouts in which private equity firms control an entire company.
In an interview, Sammons said Carlyle's investment in Ithaca Holdings, which started in 2017, stemmed from a macro trend that he and his team of 12 professionals in New York identified. And it continues to play out today. "We have seen a big shift around the influence that celebrities and artists have over the consumer world, and we want to invest capital with great partners who help us capitalize on those macro industry trends," he said.
After realizing that, Sammons met up with Braun and after discussions about the future of the music industry and Braun's own business, invested in Ithaca and secured himself a seat on its board of directors.
Sammons calls this the "founder-led approach" to private equity. It also speaks to the allure of investments in the industries Sammons covers, particularly in music and entertainment.
Music labels are attractive to private equity because of their long-term cash flows. A hit song from the 1950s can generate profits for as long as consumers continue to tune in and buy the artists' merchandise. In recent years, a number of private equity firms have purchased ownership stakes in companies that sell licensing rights to songs. This includes Blackstone's 2017 acquisition of SESAC Holdings, which licenses the music rights to songs by Adele, Bob Dylan and Neil Diamond, as well as Wood Creek Capital Management's 2013 purchase of Concord Music Group. Concord recently worked with Ariana Grande's managers in licensing the rights to "My Favorite Things," as sung in 1959 by Julie Andrews in "The Sound of Music," so that Grande could use it in her single "7 Rings."
Carlyle previously owned a minority stake in headphone-maker Beats, starting in 2013, and Sammons worked with founders Jimmy Lovine and Dr. Dre on expanding its premium headphone business before it was sold to Apple for $3 billion in 2014.
Other deals in his portfolio that have had the founder-led treatment: Carlyle's 2014 investment in Vogue International, a hair care business and a 2008 investment in Moncler Group, a manufacturer of sportswear products.
To be sure, Carlyle is not the only firm that has cultivated relationships with founders and then struck deals as minority stakeholders. The tack isn't limited to the music industry, either. Just last week, Blackstone and the Lego's founding family announced a deal to acquire Merlin Entertainments, the large operator of visitor attractions, in a deal valued at $7.5 billion. Under the terms of the deal, Kirkbi, the holding company of the founding family that owns the Lego brand, will own half the company, while Blackstone will split the remaining 50 percent with the Canada Pension Plan Investment Board.
Sammons, the Carlyle executive, declined to comment on any specific changes to the business that may result from Ithaca Holdings' acquisition of Big Machine Label Group. He also did not address Taylor Swift's complaints about the deal, which made headlines Monday when she called the announcement her "worst case scenario."
Swift aired her grievances in a Tumblr post that ownership of her music would switch hands to longtime foe, Scooter Braun, whose client Kanye West has publicly feuded with Swift.
Instead, Sammons stressed the global reach of Carlyle, which could prove valuable for Ithaca and Big Machine going forward.
"Music as an industry is very global," Sammons said. "And we have resources and assets all around the world that we think are appealing to founders and CEOs."