Lee, Bain Make 2X Money With Warner Music Investment

Warner Music was a very good deal for Thomas H. Lee and Bain Capital.

Today, Access Industries agreed to buy Warner Music in a $3.3 billion deal. Access beat out a bid from Tom and Alec Gores’ Platinum Equity/Gores Group. Access also trumped an offer from Sony which partnered with Guggenheim Partners and investor Ron Perelman. The deal may not be done; the Gores brothers are reportedly considering boosting their offer for Warner.

Even without a possible bidding war, the Warner deal was very good for the sponsors. Thomas H. Lee and Bain, in fact, each stand to make a roughly 2x their money on the deal, sources say. Lee itself expects the deal to generate an IRR of 34% on the deal, one person says

How did Bain and Lee do this? Along with Providence Equity and Edgar Bronfman, they acquired Warner Music in 2004 for $2.6 billion. The sponsors invested about $1.25 billion equity, according to SEC filings. Two months after closing the deal, Warner Music paid its investors $200 million as part of a $554 million refinancing.

Warner Music went public in May 2005. Following the IPO, Lee owned 36.24% of Warner common stock, Bain had 15.49%, Providence owned 8.3% and Bronfman had 2.2%.  Warner, at this time, reportedly paid out another three dividends that netted the investors an additional $1.23 billion. In all, the investors have received several dividends, one person says.

Lee initially invested $525 million in Warner, which jumped to $655 million including LP co-investments, the source says. Lee made back most of its investment in Warner Music during its first year, a source says. In fact, Lee received $775 million in dividends during the first year of the investment, the person says.