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Private equity has been on a tear for snapping up businesses in the live music industry this year… and direct lenders are now queueing to finance them.

Once a sector reserved to the ‘quirky’ investment category, the industry has grown to become both an essential and fruitful source of revenue in the era of cheaply streamed music.

“The music industry has always been lucrative, but the business model has completely flipped on its head in the last few years,” a source who invests in the sector told 9fin.

“With artists getting paid a fraction of a penny per stream and album sales tanking, the industry has had to adapt and expand in other areas,” they continued. “Live events and touring has proven to be one of the best ways to do that.”

From 2018 to 2028, global revenue from live music ticket sales is expected to grow by 83% from $20.3bn to $37.2bn, according to Statista data.

With projections like that, it should come as no surprise that the titans of private equity have begun to take notice.

In June, KKR bought European music festival operator Superstruct Entertainment in a £1.1bn all-equity deal, as 9fin reported, before tapping a club of direct lenders for £575m of debt financing.

Last month, Goldman Sachs acquired a majority stake in TAIT, the live events stage builder behind Taylor Swift’s Eras Tour, according to Bloomberg.

But an even clearer indicator of the live music industry’s growth potential is its average revenue per ticket buyer, which is anticipated to increase by 43% from 2018 to 2028, as shown in the chart above.

It’s a stark contrast to the music streaming world which, although expected to grow steadily over the next decade, has seen its average revenue per user decline by 40% from 2016 to 2023, according to Goldman Sachs Research.

That’s not to say opportunities in music streaming have outright lost their appeal. Just last month, Blackstone took music rights manager Hipgnosis Songs Fund off the London Stock Exchange in a £1.3bn deal.

Streaming can offer predictable and recurring sources of revenue, and is considered largely resilient to recessionary downturns — all traits that private credit funds love, as our US team reported last year.

“People consume music, whether or not the economy is good or bad. Therefore when you’re buying a music royalty stream, it functions almost like you’re buying a bond,” Matt Settle, a managing director on Carlyle’s credit opportunities team, told 9fin at the time.

But as the decline in average revenue per user highlights, music streaming has become an increasingly saturated and competitive industry. As such, investors are seeking new opportunities to cash in on the global demand for music.

In the wake of the Covid-19 pandemic, pent-up demand for large-scale, socially interactive experiences has helped to propel the live music industry’s growth.

Variety market research from 2023 found that 79% of consumers believe attending live events has become more important to them since the pandemic, with younger generations in particular increasingly valuing such experiences.

In fact, 18% of last year’s $36.6bn net increase in consumer spending for the global entertainment and music industry came from live ticket sales alone, according to research from PwC.

The recent growth in live music revenue has been skewed towards massive global tours from the likes of Taylor Swift, Beyoncé, and Coldplay — with Swift’s alone bringing in $1.04bn last year, according to Pollstar data.

Running such tours requires enormous amounts of upfront investment to cover every minute logistical detail, but the payoff can be worth it for the huge cash flows they bring in. It’s a compelling case for investors with the appetite and the know-how to grow such businesses.

Earlier this year, UK-based buyout firm Apiary sold tour manager TAG Group to ECI Partners for a 4x return, with Clearwater arranging private debt financing for the deal. Apiary began exploring a sale last December, marketed off £15m-20m of EBITDA, as 9fin first reported.

One of TAG’s most famous clients, Coldplay, is currently on its eighth world tour. With 177 shows earning an average of $6.1m along the way, the tour is expected to rack up over $1bn in revenue by its final performance this November.

“It takes around 200 people to run Coldplay’s tour,” a source familiar with the business said. “These are huge, global undertakings that come with heavy operating costs.”

However, the payoff comes in the form of millions of adoring fans, all willing to cough up a few hundred dollars each to see their favourite star perform.

"If you're a lender with experience in the sector that can work around the operational challenges, then the revenue generated from these tours can look very attractive," the source added.

"And, crucially, the industry is heavy on assets that lenders can secure their loans against, like expensive audio equipment or revenue from future ticket sales, which can reduce some of the risk associated with it being a consumer cyclical sector."

Since the pandemic, the average ticket price for the top 100 tours worldwide has outstripped inflation by some margin, increasing by 36% from 2019 to 2023, Pollstar data shows.

But the price hike has not impacted demand. In fact, most fans have indicated they are willing to pay even more. The same Variety research mentioned above found that over half (56%) of consumers said they would pay more than $200 for music tickets, with 19% saying they would pay over $500.

And these are sticky customers too — 79% said they have seen an artist perform live more than once, of which 59% have seen the same artist four or more times.

For music festivals specifically, the outlook also looks positive, with 40% of consumers expecting their attendance at festivals to increase over the next 12 months at the time of the survey.

From investors’ viewpoint, part of the appeal of music festivals is that they provide an enclosed, multi-day experience that can plug in to a myriad of further opportunities to generate revenue.

With Superstruct, KKR’s upfront equity payment suggested its confidence in being able to turn the firm into a successful growth story.

The debt package later agreed with lenders including CVC and Carlyle was competitively priced at E+550bps with an OID of 98.5, 9fin data shows. Such terms wouldn’t look out of place on a software deal in today’s market conditions, highlighting the strength of the live music sector and its newfound allure among direct lenders.

“There are a few ways you could approach a business like Superstruct,” a source who looked at the deal said. “Do you just keep buying up more and more festivals across different geographies and form this huge festival conglomerate? Or do you take a holistic approach, look at each festival as an experience, and think how can we improve this experience?”

“Think of everything that goes into a festival — what can we do to be more involved in every pocket of the festival and streamline that entire experience?”

Festivals incorporate food vendors, ATM machines, payment processors, wrist bands, stage design, and a whole host of interactive activities that the festival owner can capitalise on through other owned businesses or partnerships.

Just in the process of selling tickets, increased demand and competition over highly coveted events is presenting opportunities to tap into providing resale platforms and payment plan services.

One thing’s for sure — consumer appetite for live music has proven stubbornly resilient to high inflation and cost of living concerns since the pandemic. Which has left investors thinking that there may be more potential in this not-so-cyclical sector than it once thought.

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