MBW doesn’t suppose you often spend your days poking around UK Companies House filings like we do.
But if you did, and if you clicked on the right filings from Kobalt Music Group Ltd (still a UK-registered company), you could learn a lot about one of the modern era’s most powerful music services companies.
One of the things you’d learn, for example, is that Kobalt’s list of current shareholders is loooooong.
Kobalt had over 210 separate shareholders in mid-May this year, according to a confirmation statement filed at the time, made up of a mixture of VC investors, management, employees, ex-employees and more besides.
That list just got considerably shorter, with today’s big news that Kobalt Music Group is in the process of being sold.
When that sale officially goes through, private equity company Francisco Partners will own a controlling stake of around 90% in Kobalt.
The remaining ≈10%, it’s understood, will be split between just three parties: Matt Pincus’s MUSIC, Dundee Partners (the family office of ex-Goldman Sachs Partner, Steve Hendel), and Kobalt’s founder, Willard Ahdritz.
This will be a much simpler ownership structure for Kobalt than we’ve seen before.
(Kobalt’s institutional investors over the past 22 years have included the likes of Hearst Entertainment, Michael Dell’s MSD Capital, and Google Ventures.)
Here are three other major takeaways from today’s announcement that will influence the shape of Kobalt Music Group going forward…
Expect Kobalt to get acquisitive
Following the sale of AWAL and Kobalt Neighboring Rights to Sony Music for $430 million last year, Kobalt was left with two core businesses – Kobalt Music Publishing and collection society AMRA – as well as a decent pile of cash on its balance sheet.
That cash pile was enhanced over the past two years by fees related to the sale of a pair of catalogs – for a total $1.4 billion – by Kobalt’s now-defunct investment management arm (Kobalt Capital).
Last year, Kobalt Chairman, Willard Ahdritz, and CEO, Laurent Hubert, told MBW that Kobalt Music Group had started targeting acquisitions of music catalogs on its own balance sheet for the first time.
That meant Kobalt Music Group itself – best known as a music publisher that enables creators to keep their rights – was also moving into owning rights, by buying bundles of them from talent.
“We will continue with our hybrid strategy of acquiring IP while servicing songwriters. but there will also be [company] M&A. Anything that will enable us to augment our services and amplify our USP position in the marketplace is something we will consider.”
Laurent Hubert, Kobalt
With 2022’s additional injection of investment into Kobalt from Francisco Partners, this mission is moving to the next stage: actually acquiring companies that add to Kobalt’s services offering.
Today, announcing the Kobalt deal, Francisco Partners’ Deal Partner, Mario Razzini, noted that FP would be looking to drive growth at Kobalt “both organically and inorganically”.
Laurent Hubert further explained to MBW what that means.
“We will continue with our hybrid strategy of acquiring IP [catalogs] while servicing songwriters,” he said, “but there will also be [company] M&A.
“Anything that will enable us to augment our services and amplify our USP position in the marketplace is something we will be considering.”
2) Expect AMRA to be super-charged
Another interesting quote to emerge from Francisco Partners today in the Kobalt acquisition announcement came from the investment company’s Matt Spetzler.
He said: “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.”
The bolding is MBW’s own there, but it was interesting to see FP echo Kobalt’s long-standing assertion that AMRA – which collects royalties direct from digital services for songwriters and publishers – has a hockey-stick of growth ahead of it.
The potential of AMRA can perhaps best be summed up by Kobalt’s own published finances for FY2021 (the 12 months to end of June 2021). In that year, AMRA’s annual revenues topped $100 million for the first time, hitting $109.8 million – up by 40.2% versus the prior year.
Laurent Hubert told MBW today: “Up until now the vast majority of AMRA’s revenue has been Kobalt-related. We see a more ambitious strategy with AMRA that will go outside of the Kobalt ecosystem.”
He noted that Kobalt’s M&A strategy going forward could well involve a buyout to “super-charge AMRA as a service provider and a collection society”.
“We are greatly profitable, our [IP acquisition strategy] is now on our own balance sheet, and we have a $45 billion private equity fund behind us; we are even better looking! This is truly Kobalt 3.0.”
Willard Ahdritz, Kobalt
Willard Ahdritz, discussing the future following the Francisco Partners deal, said: “We selected this particular partner [FP] for this recap.
“Today, Kobalt is greatly profitable, our [IP acquisition strategy] is now on our own balance sheet, and we have a $45 billion private equity fund behind us; we are even better looking! This is truly Kobalt 3.0.”
“We have put new tires on our Formula 1 car,” added Ahdritz. “We are coming back out of the pits!”
3) Kobalt X Matt Pincus (again)
Back in 2017, Kobalt – on behalf of a private fund – acquired Matt Pincus’s SONGS Music Publishing for a nine-figure sum.
As part of Kobalt’s new ownership structure, Pincus’ MUSIC – which recently raised $200 million – will acquire a minority shareholding in the company, while Pincus himself will join the Kobalt board.
Willard Ahdritz told MBW: “I met Matt in 2005, and watched him build SONGS in partnership with the Kobalt platform [which has always administered the SONGS’ repertoire]. We know him well, and he really knows music and the music industry.
“It’s always good to have ‘music people’ on the board. Matt understands music, he was a respected member of the NMPA board, and he’s made some good investments in Splice and other companies.”
“Matt really knows music and the music industry… Steve [Hendel] is a finance guy but with a deep passion for music.”
Willard Ahdritz, Kobalt
Added Ahdritz: “I’m pleased he joined the consortium with Francisco Partners, together with Dundee Partners and [Steve] Hendel, who I have known for six years.
“Steve [backed] the FELA! musical, and he has his own record label. He’s a finance guy but with a deep passion for music.”
Dundee Partners / the Hendel family teamed up with KKR last year to acquire a portfolio of rights from Kobalt Capital – including, coincidentally, the SONGS Music Publishing catalog – for a total consideration of $1.1 billion.Music Business Worldwide