Moonbug Entertainment Ltd., the company behind the hit children’s show “CoComelon,” is looking to cash in on its popularity by either selling itself or going public, 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% in July struck a deal to launch a spinoff of the series for three seasons.
The company has received interest from multiple suitors and is seeking a valuation of more than $3 billion, some of the people said. One suitor is a company backed by private-equity giant Blackstone Inc. BX 0.63% run by former Walt Disney Co. executives Kevin Mayer and Tom Staggs, the people said.
There is no guarantee that the conversations with potential acquirers will result in a deal, the people said. Moonbug is also weighing an initial public offering, which executives believe would result in a valuation significantly higher than $3 billion, some of the people said.
The growing appetite for TV shows and movies sparked by the rise of new streaming services has kicked off a flurry of mergers and acquisitions in Hollywood as independent studios look to cash in on the gold rush. Messrs. 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 was buying 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 is expecting profits to double next year to roughly $200 million, as it acquires new shows and licenses them to distributors around the globe. By the end of 2021, Moonbug expects to have 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 owns a majority stake, one of the people said. The last funding round, a $120 million infusion in 2020, valued the company at nearly $1 billion, the person said.
Moonbug is looking to meet the growing appetite for children’s content as the pipeline for popular shows from traditional TV networks runs dry. Demand for children’s 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 of the caliber of Nickelodeon’s “Paw Patrol” or “Dora the Explorer” to meet that demand, said Cyma Zarghami, the former president of ViacomCBS Inc.’s brand Nickelodeon who has founded her own children’s 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 could include streaming-TV deals, movies and merchandise.
Paying 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 identify emerging shows on YouTube and build franchises around them before they appear on Moonbug’s radar.
Other companies in the children’s space have also explored cashing in.
Pocketwatch Inc., which manages the popular children’s entertainment franchise “Ryan’s World,” recently tapped investment bank Lazard Ltd. to explore options that include selling the business or raising funding to bankroll acquisitions, according to people familiar with the matter. Pocketwatch follows a similar playbook to Moonbug, licensing popular video content with franchise potential, selling merchandise and developing spinoffs.
Entertainment One, the studio behind Peppa Pig, sold in 2019 to games company Hasbro Inc. for $3.8 billion.
Moonbug got a major endorsement in July when Netflix ordered three seasons of “CoComelon Lane,” a spinoff of the popular “CoComelon” franchise on YouTube. “CoComelon” was already a hit on YouTube; it generated more than 1.5 billion views on the video platform over 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 struck by 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, acquiring studios that own intellectual property that they are free to license to any network or streaming service, The Wall Street Journal reported.
Write to Benjamin Mullin at Benjamin.Mullin@wsj.com, Lillian Rizzo at Lillian.Rizzo@wsj.com and Miriam Gottfried at Miriam.Gottfried@wsj.com
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