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BMG and KKR Reunite to Pursue Music Rights Acquisitions

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A lot has changed in the publishing sector since the two firms parted company in 2013.

BMG and KKR, who consolidated the music publishing sector a decade ago as partners during a period that first saw private equity coming into the business, are teaming up again to join the latest frenzy of acquiring music assets. According to an announcement on Wednesday, the two are joining forces for the first time since 2013 to pursue recorded music, music publishing, and other music rights acquisitions.

"The agreement to collaborate positions BMG and KKR as leading acquirers of music rights with world-class catalog management capabilities and the ability to invest in transactions of all sizes," the companies said in a joint statement. "The new relationship does not involve any transfer or sale of equity in BMG or the formation of a joint venture between KKR and BMG, which is part of the international media, services and education company Bertelsmann."

The pair’s last joint venture spanned 2009 and 2013, during which time they acquired such large music publishing and private equity investment vehicles as Bug Music, Evergreen Copyrights, Cherry Lane Music Publishing and Stage Three Music — and even were finalist bidders on EMI Music Publishing before it was sold to a consortium of investors led by Sony Music. The BMG/KKR joint venture ended when BMG bought out KKR in 2013, and the Bertelsmann unit has since pursued music publishing growth in mostly organic ways, while still initially buying recorded music assets like the BBR Music Group and Vagrant.

"BMG has become an innovative leader in the music industry by embracing digital trends early on, while always placing artists at the center of everything they do," KKR partner Richard Sarnoff, who also previously was an executive at Bertelsmann, said in a statement. "We are delighted to reunite with BMG’s talented team to pursue future opportunities together, leveraging our complementary platforms."

This time, the partnership will operate on a deal-by-deal basis, where sometimes the two may be co-investors in buying assets, or each might go it alone in deals. As a BMG spokesman puts it, there is no one-size-fits-all approach. If the latter occurs with KKR buying the assets, BMG’s music publishing and record label platform could come into play as a service provider.

"Our early partnership with KKR helped us rapidly become the first new international music company of the streaming age winning the trust of artists and songwriters with great service and 21st century levels of fairness and transparency," BMG CEO Hartwig Masuch said in a statement. "This new relationship with KKR will offer artists and songwriters a well-funded, financially stable home for their music assets with the confidence that their songs and recordings will be managed both professionally and respectfully."

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There is a $1 billion pipeline of potential acquisitions for BMG to explore, Masuch tells Billboard. Regardless of whatever deals emerge, both companies have already returned to music asset acquisition mode as BMG recently purchased Mick Fleetwood’s interest in the Fleetwood Mac catalog, while KKR acquired OneRepublic frontman Ryan Tedder’s music publishing and recorded music rights.

Things have changed dramatically in the music business since the BMG/KKR partnership ended eight years ago, Masuch tells Billboard. Back then, the music industry was still experiencing a downturn but now there is a lot of upside potential. "Now, might be the best moment for artists to sell… and get a fair price," Masuch says.

From the Bertelsmann/BMG perspective about jumping back into acquisition mode, "we have seen a couple of companies take the lead in this but we think we can be an incredibly important player to bring our platform to bear in managing assets," Masuch says. "We have an approach to deliver the quality and reliable partnership that is attractive to the financial community. So we were looking for the right investors and [KKR] were looking for the right platform."

Recently, big music companies like Kobalt, Downtown Music Holdings, and Entertainment One have been on the block but the former two say they are no longer up for sale. Hartwig says BMG is not interested in buying platforms because it already has a "great platform."

Nevertheless, BMG says in a statement it is "interested at all levels of the market and at the top end we don’t see any limit, if the fundamentals support the valuation (given the funding behind the two, there is no size of deal we could not compete for."

Bertelsmann chairman & CEO Thomas Rabe added in a statement: "BMG and KKR can jointly pursue opportunities for acquisitions of major catalogs of music rights from now on. Together with KKR, we are ideally positioned to make attractive offers to rights owners… KKR was already the ideal partner and catalyst once before, following the reestablishment of our music subsidiary in 2008."

He added that this new deal will "ignite the next stage."