“AUDIO SECTOR REPORT “Good Times. These Are The Good Times” – “Recap of Q1 2021 EXECUTIVE SUMMARY Q1 2021 Audio Sector Wrap-Up » The activity across the audio sector in Q1 2021 continues to reinforce our view of the two powerful and fundamental investment themes in the category: we are at the start of a 10+ year investment cycle in music, broadly; and, the re-platforming of the industry to the digital tier that is well underway will introduce greater monetization opportunities on a truly global scale for creators, artists, fans, indie labels, majors, and investors » The quarter’s M&A activity has been robust and across all categories in the music landscape, from creator tools to DSPs to indie publishers and technology companies, highlighted by: ― Square’s acquisition of Tidal (DSP, artist economy) ― Sony’s acquisition of AWAL (distribution) ― Francisco Partners’ investment in and acquisition of Native Instruments and Izotope in the same quarter (creator tools) ― Spotify’s acquisition of Locker Room (artist economy) » Not to be outdone by M&A, the pace of financing and investment in the category has continued unabated with strategics and financial sponsors making some very big bets: ― Apple’s $50MM investment in UnitedMasters (distribution) ― TME’s $57MM investment in PEX (technology) ― Blackstone’s $450MM investment in Epidemic Sound (distribution) ― Goldman Sachs’s $55MM investment in Splice (creator tools) » And “the song as an asset class” theme that we have also been tracking for some time has continued to see momentum, the highlight of the quarter being KKR’s announced partnership with BMG to pursue acquisition of music copyrights. The heavy-hitters are in the arena and the competition is only elevating, but the investment conviction underscores the tremendous opportunity and belief that the TAM in the industry is expanding quickly and that technology is unlocking greater monetization opportunities than ever before » And then there is the NFT – a relatively new entrant – making a lot of noise this quarter. We are extremely excited about this development and believe in many ways that it is a perfect solution for artists and rights holders to monetize rights and engage passionate fans with collectable, unique tokens created around songs or recordings. More to come! Select Q1 Active Acquirers Select Q1 Active Investors 2 TABLE OF CONTENTS I. GCA Overview II. Digital Music Trends and Insights III. Public Markets IV. M&A and Financings V. Public Comps Backup 3 GCA OVERVIEW GCA’s Dedicated Sector Knowledge and Execution Excellence GCA Music Focus GCA’s Global Music Leadership Team STREAMING PUBLISHING JOHN LAMBROS SASCHA PFEIFFER Member of the Board, Member of the Board, President, GCA US Co-Head, Europe RIGHTS [email protected] [email protected] DISTRIBUTION MANAGEMENT SAMEER JINDAL JONATHAN NORMAN ENGAGEMENT ARTIST SERVICES Managing Director, Managing Director, TOOLS Head, India Digital Media [email protected] [email protected] AI TOOLS & VIDEO & ANALYTICS CREATIVE DAVID FEGLEY MALTE ABRAMS Vice President Director [email protected] [email protected] PROMOTIONAL LIVE EVENT SERVICES MANAGEMENT GCA Overview 25 >500 500+ 245 80% OFFICES AROUND M&A TRANSACTIONS IN PE DEALS IN THE REPEAT OR THE WORLD PROFESSIONALS LAST 3 YEARS LAST 3 YEARS REFERRED CLIENTS Notes: The above transactions represent a compilation of past and current deals that GCA entities, including GCA Advisors, LLC, GCA Advisors Corporation and GCA Altium have advised on. 4 GCA OVERVIEW Leading Global Investment Bank Providing Strategic M&A and Capital Markets Advisory Services STOCKHOLM MANCHESTER LEEDS PARIS FRANKFURT BIRMINGHAM MUNICH KYOTO NAGOYA ZURICH TOKYO LONDON SHANGHAI NEW YORK LAUSANNE MILAN NEW DELHI OSAKA TEL AVIV SAN FRANCISCO FUKUOKA TAIPEI MUMBAI SINGAPORE HO CHI MINH CITY Global platform: Sector expertise: Exceptional cross- 25 offices in key Experienced team: Expansive coverage border capabilities: markets across Over 500 employees and deep Half of all America, Asia and across the globe specialization transactions Europe Broad spectrum Diversified Strong reputation of clients: business model: and track record: Leading Geographically High number of conglomerates, top balanced, synergistic repeat clients and private equity firms and complementary referrals and emerging high- focus areas growth companies San Francisco | New York | Birmingham | Frankfurt | Fukuoka | Ho Chi Minh City | Kyoto | Lausanne | Leeds | London | Manchester | Milan | Mumbai | Munich | Nagoya | New Delhi | Osaka | Paris | Shanghai | Singapore | Stockhom | Taipei | Tel Aviv | Tokyo | Zurich 5 GCA OVERVIEW Case Study: Native Instruments’ Sale to Francisco Partners GCA acted as exclusive financial advisor to EMH Partners on the sale of a majority stake in Native Instruments, the leading vendor of software and software-enabled hardware for digital audio production, to Francisco Partners SITUATION SOLUTION » Native Instruments is the global leader in digital music » GCA generated strong process momentum by creation software and hardware, with more than 1.5 introducing several very eager bidders early, of which TRANSACTION DATE million active users Francisco Partners emerged as the most motivated Pending » Native Instruments was founded in 1996 in Berlin and » Navigated the process through COVID environment with January 2021 employs more than 400 employees worldwide, operating video conference meetings between the parties in seven global offices DEAL TYPE » Drew in parties that had actively followed the Company M&A » In 2017, EMH Partners invested $60MM in Native in the past to increase number of process participants – Instruments, followed by a further investment in 2020 to even during the lockdown achieve majority ownership in the Company SECTOR » Received multiple proposals from PE with different Digital Media, Music, » With Francisco Partners, Native Instruments is planning to transaction structures and assisted the Company and Software, Technology further enhance its product leadership, drive board in evaluating and optimizing the various options consolidation in the growing and fragmented market for » Drove price and certainty through closure digital music creation, and extend its already leading position in the industry 6 TABLE OF CONTENTS I. GCA Overview II. Digital Music Trends and Insights III. Public Markets IV. M&A and Financings V. Public Comps Backup 7 DIGITAL MUSIC TRENDS AND INSIGHTS Q1 2021 Music Sector Wrap-Up – Key Subsegment Trends We’re Tracking 1 2 3 Technology underpins the future “The hardest working Major in the Rapid globalization of streaming of music sharing and monetization music industry”– WMG’s busy quarter driving ubiquity & fueling growth 4 5 6 Creator tools consolidation & The song as an asset class – The artist economy goes investment well underway another quarter of activity mainstream 8 TECHNOLOGY UNDERPINS THE FUTURE OF MUSIC SHARING AND MONETIZATIO N 1 Pex Raises Funding from Tencent Music Transaction Overview Pex Overview » On February 16th, Pex announced a $57 million Headquarters: Los Angeles, CA investment from Tencent Music Founded: 2014 » Existing investors Illuminate Ventures and Susa Employees: ~100 Ventures as well as new investors Tencent, Amaranthine, Cue Ball, and NextGen Venture Description: Pex is a leader in digital rights technology aiming to bring Received Later Stage VC Partners also participated in the round transparency, attribution, trust, and compensation to the digital world. The Company’s technology monitors social networks Investment from » The investment will help Pex to scale its worldwide to find music and film content that belongs to Attribution Engine (AE), which the Company rightsholders and has been shared without authorization. describes as “the licensing infrastructure for a better Internet” » The round comes a year after the Company’s Platform Features $57MM acquisition of Dubset, a music rights startup, in March 2020 Product Overview – Attribution Engine & Content Mgmt. Platforms » Support content creators, protect users, license from rightsholders, and incentivize advertisers – all while safely growing your platform Selected Transaction Commentary Rightsholders Attribution is vital to the Internet; We live in a world where » Your content is constantly reused without your consent – finally “it can help protect copyright “everyone is creating, mixing, and you can control how, when, and where your content should be without stifling creation. My vision remixing copyrighted works. But used before it’s published has always been to deliver a set of the ability to rapidly identify, technologies that brought attribute, and license them in real- Creators transparency, accuracy, and – time is the missing link to address » Platforms using Attribution Engine give their users access to most importantly – trust to digital the value-gap. If we could more copyrighted content through real-time licensing so you rights and content. I feel Pex has seamlessly compensate artists – if now accomplished that and with we could enable a culture of fair can create with confidence “ this round of funding we are well and universal attribution –“ then Law Enforcement positioned for what lies ahead. we could set the stage for a truly » By securely providing digital footprints of known toxic content free and open Internet. to Pex, uploads with harmful material can be identified and blocked from ever publishing Rasty Turek, Amadea Choplin, Founder & CEO, Pex COO, Pex Notes: Sources: Pitchbook,