Kobalt Music Group just became a ‘unicorn’ – but you’d have to know your recent music industry history to understand why.
First things first: Today (September 7), Kobalt has confirmed, as predicted by MBW last month, that private equity company Francisco Partners (FP) is acquiring a majority stake in its business.
MBW understands that, should the deal clear regulatory/closing conditions, FP’s controlling stake in Kobalt will equate to around 90% of the music company.
Meanwhile, two other new co-investors are to each acquire minority stakes in Kobalt at the same time: Matt Pincus’s MUSIC, plus Dundee Partners. (Pincus will join the Board of Kobalt post the deal closing.)
It’s further understood that Kobalt founder, Willard Ahdritz, will continue to own a minority stake in the firm.
The buyout of Kobalt was worth approximately USD $750 million, according to people familiar with the deal speaking to MBW.
But that sale only covers Kobalt as it stands today (Kobalt Music Publishing plus AMRA).
Cast your minds back just over a year, and you’ll recall that Sony Music acquired two businesses from Kobalt Music Group – recorded music platform AWAL, plus Kobalt Neighbouring Rights – for a confirmed price of $430 million.
Kobalt Music Group has been sold, therefore, for a total of approximately $1.2 billion ($750m + $430m).
Thus, in investor speak, Kobalt has achieved ‘unicorn’ status – i.e. a startup that goes on to ‘exit’ for over a billion dollars.
Not that Kobalt’s current management team are actually ‘exiting’.
Following the Francisco Partners deal, Willard Ahdritz will remain as Kobalt’s Chairman, while the company will continue to be led by Laurent Hubert (CEO), Jeannette Perez (President and COO), Catrin Drabble (CFO), and Nuno Guerreiro (CTO).
In a media release, Kobalt said that FP’s investment will “support furthering AMRA, enriching Kobalt’s technology innovation, and expanding Kobalt’s footprint as the leading independent global music publisher”.
Francisco Partners is a US-headquartered global investment firm with approximately $45 billion in capital raised to date.
Last year, it acquired another well-known company in music – music-making platform Native Instruments – for an undisclosed fee.
Discussing his firm’s majority-sale to FP, Willard Ahdritz, Kobalt founder and Chairman, said: “For over 20 years, Kobalt has been a music leader with technology as a core part of our focus, and I can’t think of a better investor than Francisco Partners to back our vision and invest deeply in our ambitious technology development and creator services.
“Having known the team at Francisco Partners for two years, I am excited to invite them into the Kobalt family. I look forward to working with them as Kobalt Chairman. This backing is a testament to what we’ve built at Kobalt, and we will continue working to improve the industry for our clients.
“I would also like to make a special point to thank all those who believed in Kobalt from the start: investors, clients, and employees, who all contributed to building this great company, thereby changing the game for creators.”
Laurent Hubert, CEO of Kobalt, added: “Kobalt has been an agent of change and innovator for the past 20 years, and as a result, we have built an extraordinary brand and creative destination for the best creators in the world.
“We look forward to working with Francisco Partners to embark on Kobalt’s next innovation chapter.
“The combination of FP’s expertise in technology and our deep understanding of the music industry will ensure that Kobalt expands its reach and impact as a global music publisher. Our mission of being a positive transformative force for the benefit of all creators continues.”
Matt Spetzler, Francisco Partners, commented: “Our investment should help bring more resources, experience, and alignment to continue to build Kobalt as a premier destination for creators, further grow AMRA as the only global digital licensing platform, and support and invest in technology innovation across the entire Kobalt ecosystem to address the needs of creators and publishers.”
And Mario Razzini, Francisco Partners, added: “We believe Kobalt is and should be the premier platform for independent creators, and we look forward to helping them achieve this both organically and inorganically.”
(That “inorganically” is relevant: Kobalt’s Ahdritz and Hubert tell MBW that with FP’s backing, Kobalt is now officially on the acquisition hunt for both catalogs and companies to help accelerate its business in the years ahead.)
Following the sale of AWAL and Kobalt Neighbouring Rights, Kobalt Music Group has focused on two key business units: Kobalt Music Publishing, and its global digital collection society, AMRA.
Meanwhile, Kobalt’s investment management arm, Kobalt Capital, facilitated the sale of two music-owning funds over the past two years for a total of $1.4 billion:
- Fund One was sold to Hipgnosis Songs Fund for $323 million in late 2020;
- Fund Two was sold to KKR / the Hendel family for $1.1 billion in October last year.
According to documents filed at Companies House in the UK, Kobalt Music Group’s total revenues (not including asset management fees) in FY2021 (the 12 months to end of June 2021) stood at $519.4 million.
(That figure doesn’t include revenues from the now-sold AWAL or Kobalt Neighbouring Rights.)
That was up 11% on a like-for-like basis versus the $465.9 million Kobalt posted in the prior year.
Kobalt has told MBW that it is now forecasting company-wide gross collection revenues of USD $625 million in its current financial year (to the end of June 2022).
Kobalt is also anticipating that it will end the current FY with around $65 million in EBITDA profit.
Goldman Sachs served as financial advisor to Kobalt in the FP sale, while Raine Group served as financial advisor to Francisco Partners.
Kobalt Music Group serves over 700,000 songs, 30,000 songwriters, and 500 publishers, including Roddy Ricch, Max Martin, FINNEAS, Karol G, Andrew Watt, Stevie Nicks, Phoebe Bridgers, The Lumineers, Gunna, Justin Quiles, The Foo Fighters, and Paul McCartney.Music Business Worldwide