KKR enters music industry with €250m BMG deal

The buyout firm has partnered with media conglomerate Bertelsmann to develop a global music rights management business. BMG Rights Management has contracts with artists including 80s pop band A-ha, Welsh DJ Sasha and German hip hop and reggae artist Peter Fox.

Kohlberg Kravis Roberts is lending its financial weight to a music rights management platform in partnership with German media group Bertelsmann.

Bertelsmann, which will own 49 percent of the joint venture, is contributing its BMG Rights Management unit to the undertaking, which “will be integrated into the equity fund Bertelsmann set up two years ago”, according to a statement. In April 2007, Bertelsmann teamed up with the buyout arms of Citi and Morgan Stanley to create a €1 billion media-focused private equity fund.

KKR said it will invest in the BMG Rights Management joint venture from its European funds, which as of June had roughly $6.2 billion in dry powder, according to an investor update for KKR’s listed European fund, KKR Private Equity Investors.

The deal’s financial details weren’t disclosed, though a source familiar with the matter said KKR is expected to initially contribute €50 million to the joint venture. It is expected to invest a further €200 million in BMG the next five years, as the company grows organically and via acquisitions.

BMG Rights Management had a licensing catalogue of roughly 200 artists when it launched in October 2008. The company has since signed another 100 contracts with artists including Nordic band A-ha, R&B artist Jim Beanz and US songwriter Toby Gad.

“BMG has proven leadership and a strong track record of organic growth,” Johannes Huth, head of KKR’s Europe activities, said in a statement. “Our financial strength combined with BMG’s sector expertise will create a unique platform for building up a global music rights management business.”

The deal is expected to complete within the next few months, with Hartwig Masuch continuing as chief executive of the company.

Though KKR hasn’t ventured into the music industry before, it does have a track record of investing in media companies, most recently having clubbed with Permira in the €5.9 billion takeover of Germany’s ProSiebenSat in early 2007.

Bertelsmann, meanwhile, has a history of interaction with private equity firms as both a buyer and a seller. In 2005, for example, the company purchased direct marketing music and move company Columbia House from The Blackstone Group for a reported $400 million, while in 2003 it sold a €1 billion science publishing unit to Candover and Cinven.

Several of its executives have also gone on to prominent private equity firms. Its former head of strategy and mergers and acquisitions, Renate Krümmer, was JC Flowers’ German chief before recently resigning to pursue other interests. Stephen Kruemmer, until recently the managing director of 3i Group’s German business, had spent 11 years at Bertelsmann. And last year, Ewald Walgenbach, formerly a senior executive at Bertelsmann, joined BC Partners.