Serato sale gets Canadian remix as Tiny takes majority control in $175m deal

Serato co-founders A.J. Wilderland (left, formerly A.J. Bertenshaw) and Steve West first met in the late 90s at the University of Auckland. They formed Serato in 1998.

Tiny, a Canadian tech investment firm, has bought a 66% stake in Auckland DJ software maker Serato for US$66 million ($116.9m) in a cash (US$42m) and scrip (US$24m) deal that values the Kiwi firm at $175m.

Serato chief executive Young Ly said the firm will remain in Ponsonby – home of most of its 175 staff – and will be run as an autonomous operation. He would remain in charge.

It’s a case of second time lucky for Serato and major shareholders A.J. Wilderland and Steve West.

In July 2023, a deal was announced to sell 100% of their firm to Japan’s Pioneer DJ (part of AlphaTheta) for US$65m plus an undisclosed amount in bonus earn-outs if targets were hit under the new ownership.

But after a year-long investigation, which saw its decision deadline pushed out six times, the Commerce Commission blocked the deal – siding with InMusic (the owner of several major DJ hardware brands) that argued the deal would reduce competition, given Serato’s software dominates professional DJ decks and living-room set-ups worldwide.

Wilderland and West said the decision would put a dampener on future start-up investment.

Serato chief strategy officer Nick Maclaren (left) and chief executive Young Ly. Founders AJ Wilderland and Steve West still form the firm's two-man board, but they stepped back from day-to-day control a decade ago. Photo / Dean Purcell

“I feel like this time will be smooth,” Serato chief executive Ly told the Herald. He noted Tiny had no holdings in the music industry.

The Overseas Investment Office said it had approved the deal. Its decision would be published later this month.

A spokeswoman for the Commerce Commission said, “We are aware of the proposed transaction; the Commission doesn’t currently intend to consider it further at this time. However, if other relevant information comes to our attention, we may consider investigating the transaction further.”

Hang the DJ?

“There should be no issues if Tiny is a pure financial buyer, with no trade links or adjacency,” competition lawyer Andy Matthews told the Herald.

He added, “It may suggest that selling to the main competitor wasn’t the only option.”

The Canadian firm already has one Kiwi firm in its portfolio – crowd-sourced movie rating platform Letterboxd, co-founded by Aucklanders Matthew Buchanan and Karl von Randow.

No public price tag was put on that 2023 deal, but a New York Times report said Tiny had bought a 60% stake in a deal that valued Letterboxd at US$50m (then $83m). The deal put New Zealand on the radar of Tiny’s co-founder, British Columbia-based tech entrepreneur Andrew Wilkinson.

Wilkinson has sought to replicate the holding company model perfected by US investor Warren Buffett with a buy-and-hold model.

Ly said another point of appeal was that Tiny was willing to let the business stay in Auckland, under local management. “Protecting the Serato legacy was a non-negotiable.

“Our business has never been in better shape. Last week, we announced the Serato DJ integration with Apple Music, which gives DJs access to millions of songs through one of the world’s most powerful streaming platforms. In December, we released a new music production product that’s driving new revenue growth,” Ly said.

Toronto-listed Tiny said in a statement that Serato had annualised revenue of C$42.4m ($51.2m) with compound annual growth of 35% over the past five years and an adjusted ebitda (earnings before interest, tax, depreciation and amortisation) margin of 34% for the nine months ended September 30, 2024. It said 62% of revenue was recurring.

While Tiny was taking a 68% stake for just over the price Pioneer would have paid for 100% control, the Japanese deal would potentially have been boosted by earn-out payments, while the Tiny deal was more stacked up front, Ly said.

Serato had also continued to grow over the period of the 20-month sale saga.

Things have also been on the up for West in the interim.

The West Aucklander was one of the founders of ChargeNet, which operates a network of 428-and-counting EV public chargers.

In October last year, Genesis Energy paid $64m for a 65% stake in ChargeNet including a $32m investment to double the size of its charger network.

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.