CoComelon's parent company in talks to sell itself: sources

Moonbug Entertainment Ltd., the company behind the hit children show CoComelon, is looking to cash in on its popularity by either going public or selling itself, according to people familiar with the matter.

CoComelon, with its lilting nursery rhymes on subjects like putting on shoes, has been a breakout hit of the Covid-19 pandemic, with busy parents parking their children in front of the TV to sing along with computer-generated toddlers. It became even more popular when Netflix Inc. NFLX 1.54% struck a deal in July to launch a spinoff of the series for three seasons.

The company has received interest from multiple suitors and is looking for a valuation of more than $3 billion, some of the people said. One suitor is a company backed by former Walt Disney Corp. executives Kevin Mayer and Tom Staggs were BX 0.63%, the people said.

There is no guarantee that conversations with potential acquirers will result in a deal, the people said. Moonbug is also weighing an initial public offering, which Executives believe will result in a valuation much higher than $3 billion, some of the people said.

Mayer and Staggs are on the hunt for shows and movies they can build entertainment franchises around and recently spent $900 million to acquire Hello Sunshine, the media company founded by Reese Witherspoon. Last month, Netflix said it purchased the rights to stories by children's author Roald Dahl for an undisclosed sum.

Moonbug is on pace to generate roughly $100 million in profit this year, according to people familiar with the matter, through a combination of licensing, advertising and selling merchandise related to its popular shows. Moonbug expects to increase profits next year to roughly $200 million, as it licenses new shows and acquires them to distributors around the globe. By 2021, Moonbug is expecting at least 100 licensing partners, up from 15 at the beginning of the year.

Moonbug has raised $265 million from investors including Felix Capital, Goldman Sachs Group Inc. and merchant bank Raine Group, which holds a majority stake, one of the people said. The last round of funds, a $100 million infusion in 2020, valued the company at nearly $1 billion, the person said.

Moonbug is looking to meet the growing appetite for children content as the pipeline of traditional TV shows from popular networks runs dry. Demand for children content grew by nearly 58% since the beginning of 2020, according to Parrot Analytics, far outpacing the increase in overall demand for content.

There weren t any shows from traditional networks that could meet Nickelodeon s Paw Patrol or Dora the Explorer to meet this demand, said Cyma Zarghami, former president of ViacomCBS Inc. s brand Nickelodeon who founded her own children content company Mimo Studios.

London-based Moonbug was co-founded in 2018 by Rene Rechtman and John Robson, former employees of Disney and ViacomCBS s Paramount Pictures. Moonbug scouts for popular children s shows and characters on video platforms like YouTube — including the suspender-clad educational narrator Blippi and early childhood series Little Baby Bum — and builds franchises that may include streaming-TV deals, movies and merchandise.

A steep premium for a content company carries risks. There is no guarantee that the pipeline of programming from Moonbug will produce shows as popular as early hits like CoComelon. The company could also face competition from buyers who have generated emerging shows on YouTube and identify franchises around them before they appear on Moonbug's radar.

Other companies in the child spaces have also travelled into cashing in.

Lazard Ltd., which manages popular children s entertainment franchise Ryan's World, recently tapped investment bank Pocketwatch Inc to explore options that include selling the business or raising funds to finance acquisitions, according to people familiar with the matter. Pocketwatch follows a similar playbook to Moonbug, with proprietary video content licensing potential, selling merchandise and developing spinoffs.

Peppa Pig, the studio behind Entertainment One, sold to Hasbro Inc. for $3.8 billion in 2019.

Moonbug got a major endorsement in July when Netflix ordered three seasons of CoComelon Lane, a spinoff of the popular Netflix co-operative and web series. CoComelon was already a hit on Youtube. It generates more than 1.5 billion views on the video platform in the last month, according to analytics firm Social Blade, which translated into as much as $6.1 million in advertising revenue.

A deal for Moonbug Entertainment would be the second major deal between Messrs. Mayer and Staggs for their Blackstone-backed entertainment venture. The as-yet unnamed company is aiming to build an independent entertainment company for Hollywood s streaming era, which acquiring studios that own intellectual property which they are free to license to any network or streaming service, The Wall Street Journal reported.