AUDIO SECTOR REPORT Contact: JOHN LAMBROS Music Streaming Liftoff! Managing Director Tel: +1 (212) 999-7083 Q2 2020 [email protected] 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 2 TABLE OF CONTENTS I. GCA Overview II. Music In the News III. Digital Music Trends and Insights IV. Public Markets V. M&A and Financings VI. Public Comps Backup 3 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 4 GCA OVERVIEW GCA’s Dedicated Sector Knowledge and Execution Excellence GCA Music Focus Selected Relevant Transactions STREAMING PUBLISHING RIGHTS DISTRIBUTION MANAGEMENT Advisor to Fulwell 73 ARTIST SERVICES ENGAGEMENT TOOLS acquired AI TOOLS & VIDEO & CREATIVE ANALYTICS from PROMOTIONAL LIVE EVENT SERVICES MANAGEMENT Advisor to MBO Group Advisor to Chrysalis Advisor to WMG GCA Overview 25 >500 >180 157 50% OFFICES AROUND M&A TRANSACTIONS PER PE DEALS IN THE CROSS-BORDER THE WORLD PROFESSIONALS YEAR LAST TWO YEARS TRANSACTIONS 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. 5 GCA OVERVIEW Selected Recent Internet & Digital Media Transactions 6 GCA OVERVIEW Case Study: SISTER’s Investment in The SpringHill Company Transaction Overview The SpringHill Company Overview » On April 3, SISTER announced its $100 million Headquarters: Los Angeles, CA investment in The SpringHill Company Founded: 2015 » SISTER invested alongside the financial services companies Guggenheim Investments and UC Description: Provider of media content intended to create compelling stories Investments, as well as Jason Stein’s SC for television, features and digital. The company offers different Holdings feature films, webseries, television series and short films, enabling users to get an altogether different experience while » The company’s new board will include SISTER’s enjoying their favorite shows. The SpringHill Company was co- founder Elisabeth Murdoch, Serena Williams, founded by NBA star LeBron James and his business consortium Apollo Global Management’s co-founder Marc in 2015. Rowan, investment banker Paul Wachter, Live Nation CEO Michael Rapino and Boston Red Sox chairman Tom Werner Production Partners Content Offering Overview Television What’s My Million Dollar The Wall Warriors of Student Athlete Shut Up & Name Mile Teams compete in Liberty City Explores the Dribble The story of Everyday athletes trivia for cash Series covering a business of college History of the NBA Selected Transaction Commentary Muhammad Ali compete in the prizes Miami youth sports and its impact on mile for $1 million football program pop culture I’ve always wanted to use the Together with our new partners “platform of basketball to empower “and incredible team, we are Feature Films those around me. Now I’m building a consumer and incredibly excited about the entertainment business that’s opportunity to build a company committed to diversity, that’s “ that empowers“ creators, unafraid to stand up for what we consumers and everything it believe in and that’s resonating touches. with our community. More Than A Game I Am Giant Covers LeBron James’ high school basketball team in Akron Chronicles Victor Cruz’s improbable rise to football stardom, Ohio, detailing the story of five friends chasing victory and the life-shattering injury that derailed his career and his LeBron James, Maverick Carter, James’ path to superstardom dramatic attempt at a comeback Co-Founder, SpringHill Co-Founder, SpringHill Notes: Sources: Pitchbook, LinkedIn, Press Releases, Company Website. 7 TABLE OF CONTENTS I. GCA Overview II. Music In the News III. Digital Music Trends and Insights IV. Public Markets V. M&A and Financings VI. Public Comps Backup 8 MUSIC IN THE NEWS Warner Music Group’s IPO Transaction Overview Warner Music Group Overview » On June 3, Warner Music Group priced its long- Headquarters: New York, NY anticipated initial public offering at $25 a share Founded: 1958 for 77 million shares, raising a total of $1.925 billion, representing the largest IPO of the year to Description: Warner Music Group is a leading major label in the music date industry. The company comprises an array of businesses aimed » The IPO priced at the higher end of its $23 to at helping artists achieve creative and financial success while $26 price range and the size of the deal was also providing consumers with the highest-quality music content available. WMG provides recorded music / artists services and Initial Public increased from an original 70 million shares, ultimately valuing the company at ~$13 billion publishing solutions and operates through numerous Offering international affiliates and licensees in more than 50 countries. » Shares were up ~22% on afternoon trading the day of the IPO » The company will not receive any funding from Selected Companies & Subsidiaries ~$1,925MM the IPO, as the selling stockholders, primarily Access Industries, received all proceeds Services & Solutions Overview Recorded Music » Primarily through major labels Atlantic and Warner Records in the U.S. » Offer discovery and development of artists and any marketing, promotion, distribution, sale and licensing of their music Artist & Label Services Selected Transaction Commentary » Primarily through WEA (Warner-Elektra-Atlantic) and Alternative Distribution Alliance (ADA) It’s a vote of confidence in the The valuation reflects the » Provide services to artists outside the traditional recorded music “way people see music’s growth “growing awareness of the value of business such as touring, merchandising and sponsorships trajectory and how they see content. Often times“ the spotlight distribution shaping up in mature is on tech, but tech in many forms Publishing and developing markets. I think utilizes music. » Primarily through Warner Chappell Music subsidiary they see that there is still a long runway for traditional“ streamers to » Own or control rights to more than 1.4 million songs across grow and expand but also new 80,000 songwriters and composers business models. » Revenue derived from performance, digital, mechanical and Stephen Cooper, synchronization sources CEO, Warner Music Group Notes: Sources: Capital IQ, Pitchbook, SEC Filings, Press Releases, Company Website. 9 MUSIC IN THE NEWS Warner Music Group’s IPO (cont.) Financing History Financial Summary ($Bn) DATE DEAL TYPE INVESTOR AMOUNT VALUATION Total Revenue Adj. EBITDA Revenue Growth 5 $4.5 25% 6/3/20 IPO Public $1,925MM $12,750MM 5 $4.0 4 $3.6 20% 4 7/28/16 Debt Undisclosed $300MM N/A 3 15% 11.7% 12.0% 3 3/31/14 2 10% Debt $9MM N/A 10.2% 6/30/13 2 $1.0 1 $0.6 $0.7 5% 7/20/11 M&A N/A $3,300MM 1 0 0% FY '17A FY '18A FY '19A Trading Statistics $MM (except per share data) 6/30/20 $35.00 40.0 35.0 Share Price $29.50 $33.00 30.0 Fully Diluted Shares Out.