Deal focus: AID plugs HMV into music value chain

AID Partners' current priority is finding strategic partners for HMV Asia, its music and movie retailing business. Having sold a minority stake to Japan's World Innovation Lab (WiL) few weeks ago, the PE firm has now formed an alliance with China 3D Digital Entertainment through a backdoor listing in Hong Kong.

China 3D will buy the remaining interest in Digital Entertainment for HK$408.1 million ($52.6 million) and issue shares to AID Partners in return, making the private equity firm controlling shareholder. China 3D will be renamed HMV Digital China Group.

"I don't want there to be a negative connotation because it's a reverse merger. This is a business collaboration and it makes a lot of sense," says Kelvin Wu, chairman and CIO of AID Partners. "China 3D is a content creator and HMV is a distributor - working in the downstream of music industry. These two companies will have a strong market position once they are combined."

When HMV's UK business went into administration in January 2013, AID Partners bought the company's operations in Hong Kong and Singapore plus the rights to develop the brand in the mainland, Taiwan and Macau. It paid an undisclosed sum.

At that time, HMV had six stores in Hong Kong and two in Singapore, plus an e-commerce business in Hong Kong. AID Partners has since reduced the number of the retail stores to five and opened two restaurants and a cafe under the HMV brand in Hong Kong. HMV recorded HK$43.7 million in revenue and a net loss of HK$24.1 million for the year ended December 2014.

"The idea is that we want younger generation to become our customers," says Wu. "HMV is a place for entertainment and happiness. If we provide places for young people to hang out with their friends that will make them happy. We will also put in some DJ booths to give our customers a touch of live music. In this way we can differentiate ourselves from transitional retailers."

The partnership with China 3D is also intended to enrich HMV's content pipeline. China 3D is set to produce 8-12 movies this year and HMV will be the priority distributor. Further synergies are expected to come through the company's movie theater business - China 3D operates four theaters in the mainland, with two more to open this summer - and its Hong Kong artist management business.

Stephen Shiu, chairman of China 3D, says he plans to open an HMV stores in each cinema to enhance cinema-goer's experience. This is one step towards a full integration with HMV both online and offline. For example, China 3D-managed artists will hold live webchats with their fans, and media campaigns will be launched in HMV stores for newly-released movies.

"Most media companies don't have this kind of vertical integration. After we merge with HMV, we will be the most integrated company and we can make use of all of our resources," says Shiu.

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• Topics
• Greater China
• IPO
• Consumer
• Media
• Exit
• AID Partners