Kobalt Music Group in talks to sell majority stake to Francisco Partners, say MBW sources

Last year was a big year for Kobalt Music Group. The company celebrated its 20th anniversary in 2021, while selling AWAL to Sony Music – a deal which left Kobalt clear to focus on its core music publishing business, plus digital collection society AMRA.

2022, though, might be an even bigger year in the story of the company.

Senior MBW sources tell us that US-headquartered Francisco Partners is currently in advanced talks to acquire a majority stake in Kobalt Music Group, with the possibility of a deal being signed over the next week or two.

Francisco Partners is no stranger to the music business.

The San Francisco-based, tech-focused investment firm acquired a majority stake in music creation platform Native Instruments earlier this year, for an undisclosed fee.

With offices in San Francisco, London and New York, Francisco Partners has raised over $24 billion in committed capital since its launch over two decades ago. It has invested in more than 300 technology companies.

Other music-related investments made by Francisco Partners in recent years have included Eventbrite, which secured financing from the investment firm of up to $225 million in 2020.

MBW’s sources tell us that, should the Francisco Partners majority-acquisition of Kobalt Music Group be completed, Willard Ahdritz – the founder and Executive Chairman of Kobalt – will remain a shareholder in the music company, and continue to play a leading role in its future strategy.

“Kobalt’s full list of shareholders today is actually quite long and a little Byzantine,” said one source close to Kobalt’s business. “A majority acquisition by Francisco would bring clarity and stability to Kobalt’s ownership – not to mention growth capital to accelerate the expansion of AMRA globally.”

When contacted about this story by MBW today, a Kobalt spokesperson said the company “does not comment on rumors or speculation”.

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 was up 11% on a like-for-like basis versus the $465.9 million it posted in the prior year.

Kobalt’s publishing division grew its revenues in FY2021 by 9.6% to $478.4 million, up from $436.1 million in the prior year.

AMRA’s annual revenues topped $100 million for the first time in FY2021, hitting $109.8 million. That was up by 40.2% versus the prior year ($78.3m).

Overall, in terms of gross collections (including asset management fees), Kobalt says it generated $548 million in FY2021, up 15% YoY.

(Gross collections represent Kobalt’s overall revenues, plus fees it received for its role as an advisor/asset manager to music-buying funds.)

Since publishing those figures, 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.

Last year, Kobalt sold two banner areas of its company – AWAL and Kobalt Neighbouring Rights (KNR) – to Sony Music in a $430 million deal.

(The above FY2021 figures do not include revenue from AWAL or KNR.)

Meanwhile, Kobalt’s investment management arm, Kobalt Capital, facilitated the sale of two music-owning funds in the past two years for a total of $1.4 billion:

According to Bloomberg, in Q1 this year, Kobalt Music Group successfully raised $550 million in debt financing from JPMorgan Chase & Co. and HPS Investment Partners.

Kobalt reportedly intends to use these funds to build out its owned catalog of music rights via acquisitions.Music Business Worldwide