(Bloomberg) -- Moonbug Entertainment Ltd., the company behind the popular YouTube children’s channels Cocomelon and Blippi, agreed to be acquired by two former Walt Disney Co. executives in a deal valued at around $3 billion.

Kevin Mayer and Tom Staggs, who were each in line to lead Disney at one time, said in an interview Thursday they are financing the deal with money from Blackstone Inc. and debt. They previously teamed with the private equity firm to buy Hello Sunshine, the production company founded by actress Reese Witherspoon.

Mayer and Staggs are building an independent entertainment studio that can supply TV shows and movies to all the major streaming services, distribute videos across social media and sell merchandise including toys and video games. They declined to discuss the financial details of the transaction, but two people familiar with the terms put the value at around $3 billion.

In Moonbug, the pair is acquiring the most-popular kids’ entertainment property of the streaming age. Cocomelon has more than 120 million subscribers on YouTube, where it generates more than 3 billion views a month. The company also produces “Cocomelon” episodes that rank among the most popular shows on Netflix Inc. The shows feature sing-alongs with cartoon characters, including lyrics so kids can read along.

“Today the best intellectual property for kids is digital in origin -- it happens on YouTube,” Mayer said. “We’re trying to build a media company for the digital today.”

Private equity firms have poured billions of dollars into film and TV production companies and music rights in recent years, leading some Hollywood executives to question the prices being paid. Hello Sunshine doesn’t own much of a catalog, and Moonbug is just three years old. 

But Mayer and Staggs say they are taking the first steps in building the next multibillion-dollar media giant. Hello Sunshine makes high-end TV shows and films for adults, while Moonbug has the most popular kids’ TV characters on the biggest networks.

The two former Disney executives have been linked to talks involving more than half a dozen companies over the last year, and they said Thursday their next target is likely to be in social media, providing opportunities in commerce or gaming.

Disciplined Approach

“We’ve had a disciplined approach, and we’re not getting rid of that approach,” Staggs said. “Moonbug is a great example of a company growing very quickly that has huge growth ahead of it.”

Moonbug will earn about $100 million in profit this year, according to the Wall Street Journal, which first reported on the talks in October. The company generates revenue through advertising on YouTube, by supplying shows to streaming services like Netflix and through merchandise sales.

Rene Rechtman, Moonbug’s co-founder and chief executive officer, was planning for an initial public offering when Staggs and Mayer reached out about buying the company. Other media companies had kicked Moonbug’s tires in the past, but Mayer and Staggs offered him the best opportunity to remain independent. The men also all knew each other from Disney, where Rechtman worked for a few years before starting Moonbug.

Rechtman and John Robson started Moonbug in 2018 as a kids’ media company for the YouTube generation. Rechtman previously worked at Maker Studios, which managed a network of channels on YouTube, such as Epic Rap Battles of History and Kassem G. After his experience at Maker, which Disney acquired, Rechtman knew he wanted work with kids’ channels -- and wanted to own them.

In 2018, Moonbug acquired Little Baby Bum, a British animated series consisting of nursery rhymes. In July 2020, the company sold a stake to Raine Group and used that money to buy Cocomelon and Blippi, whose real life host helps toddlers learn about the world.

The popularity of Cocomelon has continued to skyrocket since the acquisition. Earlier this year, Moonbug signed an expanded deal with Netflix to produce specials for the streaming service. Rechtman struck a separate deal with Hulu for Blippi. The company is now in talks to license projects to several streaming services, and expand into gaming and music.

Rechtman and another representative from Moonbug will join the board of Staggs and Mayer’s new company, which also includes Witherspoon and Hello Sunshine’s CEO.

The internet has enabled media companies to get very big very quickly, Rechtman said. “We need to become very big, to have very big muscles,” Rechtman said. “Now we are doing with not only money but Tom and Kevin.”

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