Tencent invests in Korea's PE-backed YG Entertainment
China’s Tencent Holdings and Beijing Weiying Times Technology – an online ticketing platform in which Tencent is an investor – have committed approximately $85 million to YG Entertainment, a Korean record label and talent manager backed by L Capital Asia.
YG, which is best known for acts including "Gangnam Style" rapper Psy, has issued 1.47 million in new shares to subsidiaries of Tencent and Weiying at KRW44,000 apiece, for a total consideration of KRW64.8 billion ($54.5 million), according to a regulatory filing. They will acquire a further $30 million worth of shares from Yang Hyun-Sak and Min-Suk Yang, YG's largest shareholder and CEO, respectively.
Tencent will receive an 8.2% interest in return for its $55 million commitment, with Weiying putting in $30 million for 8.2%. They will become the third and fourth-largest shareholders in YG after L Capital. The GP agreed to invest $60 million in new shares in 2014 and acquired an additional $20 million in existing equity held by Yang. L Capital announced a merger with US-based Catterton earlier this year.
YG's stock closed down 1.71% at KRW46,100 on May 27, the day the announcement was made. As of late morning trading on May 30, the stock was down a further 1.7% around the KRW45,300 mark.
YG already has an exclusive content partnership with Tencent - the leading social media service provider in China - through the latter's QQ Music platform. Tencent and Weiying will help YG further penetrate the Chinese market, leveraging local demand for Korean popular entertainment. "In the near future, YG will establish a joint venture in China with the partners to expand the activities of YG artists, actors and actresses and discover and nurture local Chinese artists," YG added in a statement.
Yang founded YG in 1996 after retiring from Seo Taiji and Boys, a highly-successful South Korean boy band. The company operates under a three-phase strategy. It casts, trains, produces and develops new talent and then establishes these fledgling acts domestically across multiple media, including music, events, broadcasting, games, advertisements and merchandising. This is followed by efforts to take acts into other Asian markets and finally the US and Europe.
YG reported sales of KRW193.1 billion for the 12 months ended December 2015, up from KRW156.3 billion the previous year. Net income rose from KRW27.4 billion to KRW33.3 billion over the same period.
Weiying has been in operation since 2013 and is responsible for Wepiao.com, which primarily sells movie tickets. In addition to a self-developed app, the company's services are available through Tencent's QQ and WeChat networking platforms. Tencent was an early investor in Weiying and recently participated in the company's extended Series C round of funding, which valued the business at $2 billion.
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