Moonbug's 4-year sprint to a $3B exit: the deal that fuelled the YouTube Gold Rush

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Every rollup mania has an icon. For Vertical Market Software, it is Constellation Software. For D2C brands, Thrasio. And for Youtube? Surely Moonbug: “Home to the most loved kids’ shows”.  

Moonbug’s dizzying journey from an upstart Youtube aggregator to a $3B exit to a strategic buyer - backed by Blackstone and staffed by Disney superstars - beggars belief. It is also old news: the deal happened in late 2021 and was documented by the likes of Wired and Variety. 

In hindsight, Moonbug was such an obvious idea. A case of enormous, almost risk-free multiple arbitrage hiding in plain sight. 

But only in hindsight. How on earth did the former Disney exec Rene Rechtman and his co-founders Alfred Chubb and John Robson (who came over from Teletubbies’ owner DHX / WildBrain), pull off a sequence of events that allowed them to:

• Raise a $159M equity round from the get-go

• Snap up almost 30 brands to reach $237M revenue in 3.5 years…

• …and finally exit - to a Blackstone backed buyer no less - crystallising a >10x MOIC for early investors 

After poring over public filings, we reconstructed the picture. Additionally, we explain:

• What Moonbug’s cap table and waterfall looked like at the outset - and why it provoked controversy

• How Moonbug structured its first major acquisition 

• Exit metrics and incentive mechanism introduced by Candle Media, Moonbug’s new owner 

A 30 sec summary of Moonbug goes like this…

Moonbug was founded in 2018 by John Robson (COO), Rene Rechtman (CEO), and Alfred Chubb (Head of M&A), with the backing of Raine, a US merchant bank. We believe, what made Moonbug successful were these 4 core insights: 

1. Online video content for children is an awesome money machine

2. At the time (2018-20), the hottest brands were all owned by their original creators 

3. These assets were available for reasonable prices since the Hollywood studios had not yet latched onto the opportunity

4. There was upside from diversifying distribution beyond YouTube (e.g. into Netflix) and developing ancillary revenue streams (merchandise, video games, music etc.) 

Next, Moonbug used $400M in debt and equity funding to assemble a venerable stable of children’s YouTube brands including Cocomelon, Blippi and Little Baby Bum. A mere 3.5 years in, the aggregator hit $100M EBITDA (50%+ margin), at which point it was taken out by Candle Media, a private equity backed media aggregator that also acquired Hello Sunshine, a production company founded by none other than Reese Witherspoon.

Candle paid $3B for Moonbug. 

The CEO and the COO each collected nearly $300,000,000. 

The Head of M&A, with $60,000,000. Happy end!   

Want to know how? Let’s give you the detail.  

What did Moonbug’s cap table and waterfall look like? 

According to Jersey public filings, there were 7 share classes (unsurprising for our regular readers). 

Investor equity came in as preferred stock (carrying 8% cumulative dividend), followed by: C1, C2, C3, D, A, and B shares. 

The waterfall's logic was to ensure that key executives received between 24% and 28% of the liquidation proceeds, depending on the rate of return (measured as MOIC) achieved by the lead investor Raine. 

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