BMG Rights Management has put itself in a stronger position in the race for EMI by acquiring Bug Music, which owns or manages copyrights to songs including ‘What a Wonderful World’ and ‘Summer in the City’, industry members have argued.

The $300m-plus acquisition of Bug is expected to give BMG – a music publishing joint venture between Bertelsmann of Germany and Kohlberg Kravis Roberts, the private equity group – the scale to extract more cost savings from the larger auction of EMI.

BMG beat interest from others including Simon Fuller, the creator of the Idol music television format, to buy Bug from Spectrum Equity Investors and Crossroads Media.

Some larger publishers such as Sony ATV had held back from the Bug auction for fear of spending their firepower before second round bids are due for EMI, which are expected to value the UK music company at $3bn-$4bn.

EMI itself concluded that it could not bid for Bug while trying to sell itself, but EMI’s catalogue of more than 1.3m songs has long been seen as a good fit with Bug’s 250,000-plus copyrights.

Spectrum tried unsuccessfully to sell Bug last year, attracting offers closer to $250m, but held back, looking for a better return on its investment. EMI was among the larger publishers that tried to buy Bug while under Guy Hands’ ownership, with a proposal that would have involved separate financing coming from Mr Hands’ private equity company.

Bug is one of the larger independent music publishers to have come up for sale in recent years, but the transaction forms part of a broader consolidation of song catalogues in an industry where scale carries significant cost benefits.

One person who had seen its financial details said Bug had net publishers share, a measure of profitability after rights payments, of more than $35m and a 21 per cent margin of earnings before interest, tax, depreciation and amortisation. The companies declined to comment on financial details.

Second-round bids are due for EMI by early October, with interest expected from industry members including BMG, Len Blavatnik’s Warner Music, Sony ATV, and Vivendi’s Universal Music, as well as several private equity groups.

Bidders believe that Citigroup, which seized the indebted company from Mr Hands’ Terra Firma group in February, would prefer to sell EMI in one piece but could separate its recorded music and publishing arms.

Bug, founded in Los Angeles in 1975, has clients that include the estates of Johnny Cash and Muddy Waters as well as contemporary acts including Kings of Leon and Wilco.

“With the acquisition of Bug Music and its vast collection of evergreen and contemporary compositions, BMG further establishes itself as a leading music rights management company,” said Hartwig Masuch, BMG’s chief executive, in a statement.

JPMorgan and Latham & Watkins advised Bug. BMG did not disclose any advisers.

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