Serato chief strategy officer Nick Maclaren (left) and CEO Young Ly. Though little-known in NZ, the 160-strong Serato dominates the global market for DJ software. Photo / Dean Purcell
Serato chief strategy officer Nick Maclaren (left) and CEO Young Ly. Though little-known in NZ, the 160-strong Serato dominates the global market for DJ software. Photo / Dean Purcell
The Japanese firm that bought Auckland-based DJ software maker Serato in a US$70 million (NZ$113m) deal has warned its shareholders the deal did not close on August 1 as originally anticipated.
The warning comes as an industry figure raises competition issues around the deal, the Commerce Commission makes inquiries, thebuyer’s envisaged Overseas Investment Office approval deadline has come and gone, and Serato has seen staff leave in a restructure and a market filing that lays financials bare.
Serato chief executive Young Ly says there’s nothing to the various developments. He tells the Herald the OIO is simply taking longer than expected to go through the paperwork, Serato’s restructure was not related to the acquisition and actually saw a net gain of two to its staff, and that the Commerce Commission fact-finding was usual for any major deal.
And while the financials (below) were revealed by the acquirer in far more detail than Serato has been previously willing to share - they show a company in robust health.
Morgan Donoghue - a former Serato chief commercial officer - told the Herald he had concerns that Pioneer’s competitors in DJ hardware would not retain access to Serato’s software, or retain it on the same terms. Photo / Michael Craig
On July 12, Yokohama-based AlphaTheta - owner of the Pioneer DJ brand - said it entered an agreement to buy Serato for US$70m, plus earn-outs, pending approvals.
OIO head of regulatory practice and delivery Rebecca McAtamney said she could not comment on an active assessment - but did say a decision is expected in three weeks’ time, a timeframe that implies no major complications for the regulator to work through.
“Our assessment under the Overseas Investment Act considers different criteria to what the Commerce Commission might apply with a transaction of this kind. As such, any consideration by the Commerce Commission would not in general impact or delay our assessment of an application,” McAtamney said.
Squeeze on Pioneer’s hardware rivals?
Morgan Donoghue - Serato’s chief commercial officer between 2012 and 2017 - told the Herald he had concerns Pioneer’s competitors in DJ hardware would not retain access to Serato’s software, or retain it on the same terms.
He said this was a concern across the industry, given that Serato dominates the market for software that works with DJ hardware made by multiple brands.
Donoghue is today managing director of InMusic NZ - the local operation of US firm InMusic, which counts Akai Pro, Denon DJ, Marantz, Numark and Rane among its stable of DJ mixers and controllers.
A spokeswoman for the Commerce Commission said, “The commission is aware of the potential transaction and is making some inquiries to understand how the transaction could affect competition in markets in New Zealand.”
Donoghue said he was also worried about the potential impact on NZ’s tech ecosystem with Serato’s pending sale to an offshore owner. Several founders and ex-managers have successfully launched startups, including Melodics and ChargeNet. This talent would be lost if roles were offshored.
Serato chief strategy officer Nick Maclaren (left) and CEO Young Ly. Though little-known in NZ, the 160-strong Serato dominates the global market for DJ software. Photo / Dean Purcell
What of the industry chatter about roles being culled?
“We had a new leader come on board in our marketing group 12 months ago. He’s been challenged with realigning the marketing team to better fit changing market conditions. The net impact of these changes will actually grow the team,” Serato chief executive Young Ly said.
“These changes and any associated redundancies, which are never easy, are entirely separate to [the AlphaTheta] investment - which is yet to be finalised.”
On Donoghue’s concerns about Pioneer’s hardware rivals being squeezed on access to Serato’s software, Ly said: “We have worked tirelessly with our partners, including inMusic, to give them confidence about our combined future together. This includes going on the record with them [with a joint Serato-InMusic statement on July 17] to express to their users and communities that our partnership and ongoing support of their hardware will continue into the future.”
Donoghue said he knew and trusted Ly, but the pending new owners were a lesser-known quantity: “We know the Serato guys, we’ve worked closely with them for years, we have a great relationship with them. We’re just worried that Pioneer buying them out would change everything,” he said.
Ly did not address Donoghue’s tech ecosystem point, but the local tech community has long argued that offshore investment gives NZ-based firms the wherewithal to attack global markets more quickly, and the proceeds from such sales are recycled into a new wave of start-ups.
Cases in point include the likes of Xero (which drew some of the money Sam Morgan made from selling Trade Me to Fairfax, and that Rod Drury banked selling AfterMail to a US firm), and Mint Innovation, founded by LanzaTech alumni.
Then-PM Jacinda Ardern visits InMusic's Auckland office in 2020. The US firm, which counts Akai Pro, Denon DJ, Marantz, Numark and Rane among its stable of DJ hardware brands, set up shop in NZ in 2018 after buying Kiwi firm SoundSwitch. At the time, founder Jack O'Donnell put its revenue at $400m. Photo / Getty Images
AlphaTheta is ultimately owned by Tokyo-listed conglomerate Noritsu.
Noritsu said in a July 31 market filing that the deal would close later than it had previously flagged.
“The date of the share transfer, previously scheduled for August 1, 2023 has been changed ... While discussions with the counterparty to the share acquisition and related procedures are progressing smoothly, approval from the New Zealand authorities (Overseas Investment Office, Land Information New Zealand) is taking time. Consequently, the expected share transfer date, previously scheduled for August 1, 2023, has been changed to September or later, pending approvals.”
McAtamney said there was a 35-workday target for a decision on a significant business asset application, but that could be extended if the regulator was waiting on new information, consulting, or new information had come to light.
She said the OIO expected to deliver its assessment of the Serato deal on August 29.
Serato’s numbers revealed
Like nearly all privately held firms, Serato has kept its financials close to its chest.
But a market filing by Noritsu details some of the Kiwi firm’s recent numbers.
Ly has previously detailed how Serato was initially challenged by the pandemic as lockdowns laid professional DJs low amid event cancellations and nightclub closures.
But the firm pivoted to new products catering to amateur DJs and their home equipment. It also benefited from an event boom as the world reopened, Ly said.
The CEO’s broad sketch is backed up by the numbers in Noritsu’s filing, which say Serato had an operating profit of $8.5m (and a net profit of $6.1m) on revenue of $32m in FY2021 (ending March 31, 2021, all amounts in NZD).
That dipped to an operating profit of $5.7m (and net profit of $4.8m) on revenue of $30.1m in FY2022.
In FY2023, Serato rebounded and then some, with an operating profit of $10.5m (and net profit of $6.5m) on revenue that jumped to $40.4m.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
