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hi this is daniel you're watching unrivaled investing in no hype mission folks channel trying to find you exceptional companies and unrivaled investments today we're looking at bill ackman's back psth stock which is rumored to merge with universal music group let's jump right in so as we look at it once again it's in talks to merge with universal public music universal music public or universal music group and so this is this is speculation at this point it's not officially announced when it is officially announced if i get enough likes on this video i will do a deeper dive based on the company presentation that said we do have some detail on universal music group because it's part of vivendi it's majority owned by the venue vendi's public they sold the stake to 10 cent for a lofty 38 billion dollar valuation at the end of the last year but vendi already announced they're planning to take universal music group or umg public a few years they said 2023 they accelerated that to 2021 so this could you know the the odds of that this is indeed the case where bill ackman's back is looking to merge with universal music trying to take universal music public this could actually be the case like the the stars sort of do seem to be lining up uh now it is worth understanding you know before you know getting too hyped up about it is that deliberations are ongoing on ongoing and the talks could still fall apart so this is this has been something that at least based on a recent you know bill ackman interview these talks have been going on for a long time and personally if i hear that they've been sort of interested in a deal and it's been going on for months it does make me a little bit concerned that they might be sort of splitting hairs like hey this deal doesn't just quite cut it so you might have to try to find ways to juice it to to meet the returns that you want and so that that is a little bit alarming to hear that bill ackman has been interested in this for months but hasn't really been able to get there across the finish line especially when you you know juxtapose that with some of the warren buffett famous deals where he just sort of figures it out over a weekend and just talks to the founder and it's like boom let's make it happen so hearing that this could take months of due diligence to sort of figure out that it's worth pulling trigger does make me a little uneasy about it that said let's let's go back to understanding exactly what's going on once again we're looking at bill ackman's fact psth stock or pershing square taunting holdings raises mega spec 4 billion last year keep in mind the nav for this back is 20 bucks so double what you normally see for a spec so 20 bucks a share and so when you see it you know trading at 25 bucks a share you know that is a a nice premium to the 25 20 20 nav now the market was not enthused based on this rumored deal as the the speculation source started happening the article started happening after the market closed quickly dropped 10 20 because i think the market was just pumped to think that hey maybe bill ackman was going to be finding a hyper growth company like stripe alas it's not you know stripe is not in the cards at least what it looks like for now it's it's a higher probability i would say that this sort of rumor does follow through with universal music group and so what what what's that mean what is universal music group so they're a leader in the global music industry 7.4 billion euros in revenue 1.3 billion in ebitd or ebit ah so not ebitda it's effectively it's very similar they're a leader in the global music industry and they've benefited recently from subscription streaming you know this was offsetting the hard good sales sales hard good sales that have been declining for your cd sales that have been declining album sales cds that were declining for years you you know go back to 2000 you're looking at limewire and napster where you know effectively illegal music download just was wrecking the industry and the reality is people are willing to pay a few bucks for it or they're willing to stream it through a streaming subscription service like shopify or you know youtube premium music or what have you and so you look at this and i'm looking at it and they're saying look it's the subscription streaming that's really growing this at least recently and you know you you want to look at their business and so they say six consecutive years of growth now keep in mind this is even though there's been no official public deal announced once again i'm able to look at this financials because vivendi is publicly traded and vivendi owns majority of umg and so umg you know they've grown for the last six years it's about representing international artists artists of all genres from the beatles the rolling stones andre bocelli lady gaga taylor swift um you know you talk about post malone i'm personally more of a fan of john malone i think what he does is pretty incredible and so you look at this business and it's the recorded music business is dedicated to the discovery and development of artists marketing and promoting their music across a wide array of formats and platforms they're also expanding to other areas like live events sponsoring film and television recording and podcasts this segment as we'll talk about in a second this is the one you want to pay attention to because the vast majority of the revenue and profits there are other segments are much you know they're they're much smaller you know around 20 or music publishing which you know it's about the discovery and development of songwriters where they own and administer the copyright for musical compositions and so dealing with the rights to that such as being used in films and advertisements and the last bit is merchandising where you're selling you know goods tied to the specific artists uh and that that business is a little bit more hit and miss and so looking at these individual segments based on the data that's publicly available for universal music music group you see that about eighty percent plus of their profits come from this recorded music group representing the individual audits and so that this is the segment to follow 80 or a little over around 20 operating profit 5.9 billion euros in revenue you can see how that compares versus music publishing and merchandising and it's pretty low it's not crazy growth it's it's better than gdp growth but it's not hyper growth and i think that's the reason why investors were originally disappointed where you see their revenue you know from 4.8 billion euros to around you know 6 billion euros so about cumulative 24 growth over the last two years but most of that was from 2018 to 2019 where 29 to 2020 was around 4 which isn't super compelling and then you fast forward to today or the first quarter 2021 and you see that the revenue only grew by two percent so it's not necessarily a hyper growth business this might be you know growing around gdp maybe double gdp and honestly a lot depends on the information that's going to get revealed you know as if if this deal goes through through a proxy statement through a registration statement through a presentation where you can get better detail on like oh okay maybe there's a better growth driver maybe subscriptions driving this and it's offsetting another element or maybe you know not being able to do live events it really held them back and they could have been 10 growth if there were actually live events going on and so what about valuation and just you know a quick plug if you will so once again if this my goal is to try to find potential multibaggers types of stocks that potentially go up hundreds or even thousand percent over time so if you enjoy learning about those types of company if you want to follow my personal journey as i look for these companies go to unravelingvesting.com click on journey first week of the month i call out my full portfolio then once a month i i try at least once a month to call out potential multi-baggers or type stocks that i think have that type of potential upside and we're also building out an exclusive uh you know a dedicated community of like-minded investors that like to think about this and there's also exclusive content that you can see in the link below so that's enough enough about me let's get back to bill ackman's deal psth uh spack where you look at it and once again before getting too excited about the valuation what price it is recognize that talks are ongoing and they could still fall apart you know heck this gets to the point that bill ackman has been talking about this deal for some time you know or has been working on this deal for some time it does make me concerned that it it wasn't a super fast deal super compelling or that he couldn't pull the trigger super fast so this is a hypothetical exercise that we're doing based on the rumored figures from these various different news articles like a 40 billion valuation but we do have the financials for universal music group if that indeed is the acquisition and so looking at it you know looking at a 40 billion dollar rumored valuation plus you got to factor in whatever premium that psth currently trades above nav i'm putting 20 here that would imply about a 48 billion dollar valuation for universal music group convert that to euros because historically their financials were in euros that gets to around 40 billion euro valuation based on the premium of this back psth back and so look at the revenue so 7.1 billion in revenue in 2019 7.4 billion in 2020 so about four percent growth once again two percent growth in the first quarter 21 so not crazy hyper compelling so i'm assuming a range of zero to five percent growth this next year i think a lot of this thesis that bill ackman's considering here and part of the reason why maybe he's taking so long is that he's thinking about how much could margins be in the future and he's thinking may if i could double margins and get five to ten percent growth then i will have a home run investment and that i think probably is the crux of the thesis that said i haven't seen enough data at this point to really conclusively say oh yes margins should definitely be higher i haven't heard that this has seen the data if he calls it out saying hey we've done a zero-based budgeting analysis coming to the conclusion that margins can be 30 to 40 percent then you start getting a little bit more excited about this thesis currently they're operating around 20 operating margins uh you know around 20 tax rate and so you know you take that and you you look at what the implied earnings multiple are are for you know is potentially for that deal and so effectively you're getting high 20s to to let's say mid 40s for this deal which isn't crazy compelling given the low growth profile but once again if bill ackman sees either sees sub-segment growth that might overtake the rest of the business and start resulting in a cumulative consolidated revenue growth that's better than what they're currently posting maybe that's it maybe you know maybe they're just looking at a a you know the private equity angle of hey can we get margins much higher and so you know looking out over a five-year investment time horizon i'm assuming over you know beyond 2021 a growth rate of let's say five to twelve and a half percent i personally don't see the data here to get this high side of 30 margins and 12 and a half percent growth annualized growth maybe bill ackman sees that and you know i'm assuming an n multiple of let's say 20 to 30 times i once again i wouldn't ordinarily give 20 times for a business that's only growing at five percent but there might be an element here i think i'm giving them more than a benefit of the doubt so this is a hypothetical you know valuation range i think i'm giving sort of an aggressive range here aggressively high because 20 times for five percent growth just doesn't cut it unless it's sort of a pride of ownership asset and they might be that you know hey largest music group hey like hey who you know you can effectively you're working with lady gaga here how cool is that and so there might be an element here where you get that premium multiple because of it i i you know for me investing isn't about pride of ownership it's about finding those potential multibaggers and so i'm just i'm not compelled by that type of valuation and so just plugging in these figures you know into thinking about it i'm getting like downside of about 50 maybe more you know if people you know aren't super pumped about low single digit type of growth rates and you know upside of less than 100 so i'm just not compelled by this not surprised to see the market sort of react negatively to this if you have a different takeout absolutely love to hear it and look in in my opinion when i'm when i'm considering investing i would much rather either own something that's in my opinion obvious like in in my may potential multibagger for unrivaled investing journey subscribers i call out a company that's trading below liquidation value and where i'm like hey this has two to three x percent up north two to three x upside so that that type of risk award is way more compelling versus a spac that trades at let's say 20 above cash i would personally rather invest in specs trading at cash or below cash with you know solid sponsors sponsors that i have high degree of confidence they'll find a reasonable or even above average deal so that's my personal take i'm not really sold on this deal if there's a different angle that you see looking at universal music group i'd definitely love to hear it leave a comment below if this
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