Inside the $3 Billion Deal for Kids Content Player Moonbug, Owner of CoComelon

René Rechtman, CEO and co-founder of Moonbug Entertainment, was gearing up to launch an IPO for his 3-year-old digital kids’ content company.

But earlier this year, two of his former Disney colleagues — Tom Staggs and Kevin Mayer — came calling with an offer he couldn’t refuse. The duo dangled $3 billion in cash and stock for Moonbug to become part of their new media company, backed by private-­equity firm Blackstone, according to sources familiar with the deal.

“We had no plans of selling our business. We’re growing like wildfire, and we had a lot of banks pitching up to go public next year,” says Rechtman. After some internal debate, he and his co-founder, chief operating officer John Robson, decided to accept the deal: “In Tom and Kevin, we see individuals as opportunistic and ambitious as we are,” Rechtman says.

They certainly share an appetite for acquisitions. Last year, Moonbug bought the company behind CoComelon, the massively popular nursery rhymes and songs brand that is the most-subscribed children’s channel on YouTube (with 122 million followers). Moonbug’s portfolio also includes the property Little Baby Bum and “Blippi,” a live-­action educational show hosted by a character who wears a signature blue-and-orange beanie.

While the $3 billion price tag raised some eyebrows in the biz, “there’s tremendous upside” for popular children’s media franchises in merch and game extensions, says Michael Kassan, CEO of consulting firm MediaLink. And, he notes, it’s an advertiser-safe content category.

Moonbug will join the Staggs-Mayer-Blackstone company, temporarily called TopCo, which has made one other acquisition: Reese Witherspoon’s Hello Sunshine, which it snapped up for $900 million this summer. According to Rechtman, after the Moonbug deal was announced, Witherspoon told him she spent four hours watching CoComelon content.

Mayer said the media company is looking to aggregate best-in-category brands that cover content, commerce and community — or that have potential to expand into each of those areas. “Everything we buy has to have access to those doors,” he says. “Moonbug came in through the digital content door, but they are unleashing a licensing and merchandise business that will absolutely be successful.”

Separately, Staggs and Mayer formed a special purpose acquisition company, or SPAC, which raised $350 million in an IPO earlier this year and is aiming to roll up companies in the tech, media, telecom and consumer sectors.

Founded in 2018, Moonbug had raised $272 million from Goldman Sachs, Raine Group, Fertitta Capital and others — which will get a handsome payback from the sale, pending regulatory approvals.

Rechtman, most recently Disney’s international head of digital studios and before that international head of Maker Studios, was inspired to start Moonbug after he realized that of the top 100 most-viewed children’s media brands online, virtually none were owned by big studios. And, says Robson, previously head of international digital distribution at Paramount Pictures, major streaming companies didn’t want to license Moonbug’s content.

“They’d say, ‘Well, it’s on YouTube. You need to take it off, because it needs to be exclusive to us,’” he recalls. Over time, Moonbug has proved different distribution platforms can coexist for kids’ content — and today, CoComelon is the most-viewed kids’ content on Netflix.

London-based Moonbug, which has 340 full-time employees, owns a library of more than 550 hours of content distributed on more than 100 platforms, including YouTube, Netflix, Hulu, Amazon Prime Video, Sky and Roku. The content company also is producing original series based on its properties for Netflix, Amazon and others.

Built on videos like CoComelon’s “Bath Song” and Little Baby Bum’s “Wheels on the Bus,” Moonbug will generate about $100 million in EBITDA (earnings before interest, tax, depreciation and amortization) in 2021 — and that’s on track to double next year, say sources close to the company.

Moonbug’s next big area of opportunity is video games, says Rechtman, after branching into the music business and continuing to scale up its merchandise-licensing business.

So what’s next for Staggs and Mayer? They’re mum on the coming targets for TopCo, but Joe Baratta, Blackstone’s global head of private equity, says the media company can draw on the firm’s $25 billion fund for future deals.

One thing TopCo will not do is build its own direct-to-consumer streaming platform, an area where media giants are battling for share. To compete in the global streaming wars, “it takes a massive balance sheet,” says Mayer. “It was a big risk even for Disney.”

Adds Baratta, “The scarce commodity is the content, not the mode of distribution.”

Pictured above: Characters from CoComelon, Moonbug’s most popular property

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