Late last night, my Facebook messenger pinged with a cryptic message about news agency Reuters. “Call yourself a news hound?” said my contact. Duly I popped off for a rummage and there it was — it seems that the mighty Pioneer corporation is in the final throes of finding a new home for Pioneer DJ. And then the inbox gates opened… my timeline was suddenly awash with the same noise.
Here’s the news story in full:
(Reuters) – Japanese car electronics maker Pioneer Corp is in the final stage of selling its disc-jockey equipment business, which could fetch about 60 billion yen ($570 million), two people with knowledge of the transaction said.
Pioneer has hired Bank of America Merrill Lynch to handle the sale, said the sources, asking not to be named because the process has not been made public.
Global private equity firms are among the final bidders, they added.
Pioneer, which is selling off non-core assets to focus on the automotive electronics business, in June agreed to sell most of its loss-making audio-video operations to a consortium comprising Hong Kong-based Baring Private Equity Asia and audio equipment maker Onkyo Corp. That deal has yet to close.
The DJ equipment business, which makes speakers and mixing equipment, was profitable in the latest financial year to March, a source familiar with the matter said.
Pioneer and Bank of America Merrill Lynch declined to comment.
And that is all we have. And it has been confirmed at this end by sources close to the sale. I always wanted to use that line.
So who could it be?
Over half a billion dollars is a lot of anyone’s money, especially in the DJ industry. So while we could wildly speculate about competitors selling arms, legs, and kidneys of their staff to raise funds, it still wouldn’t be enough to make a dent in that kind of sale. My best guess — private equity companies looking to get into the music industry. So when the sale is announced, I suspect you’ll never have heard of the new owners.
But hey — for fun, let’s throw some wild ideas into the arena:
- Apple’s recent acquisition of Beats has Tim Cook wanting to become a DJ, so he buys up Pioneer DJ with some loose change down the back of his office sofa.
- inMusic snaps up Pioneer DJ to make a DJ industry largely owned by one unstoppable monopolistic mega corp… which is subsequently snapped up by Apple anyway. There’s always a bigger fish.
- Native Instruments becomes the new owners. A quick redesign incorporating much sharper edges and more shiny fingerprint magnet surfaces sees a readymade line of Kontrol media players and mixers. And they repurpose the DDJs to be Traktor only, just to piss off Serato.
- Serato steams into to buy the hardware business and become an Apple-like ecosystem with no partners, and build anti-Traktor chips into everything, including headphones and monitors.
Time will tell, and I’m sure this story will run for a while until the new owners are announced and everything returns to normal unchanged. Pioneer DJ will continue to pop out stellar gear, and own the clubs with their industry standard CDJs and DJMs. They’ll just be pushing forward with a new independent and possibly renamed focus unless they licence the name from the Pioneer corporation.
I used to work in Leveraged Acquisitions and know the private equity business well. They have no interest in the DJ business. They will buy Pioneer DJ with cash (and it is usually cash) and then syndicate the loan down to a bank consortium. The banks will usually only allow the PE firm to syndicate up to 70% of the loan, say $400m USD, thus the PE firm still has an exposure of c.$170m of their own cash which the banks insist on as an “equity cushion”.
In order to gain the kind of returns required, they will usually go on the offensive and acquire competitors or attempt to gain market share where they are currently lacking. This is all to add value to Pioneer DJ as they will (usually) have an exit strategy of 4-7 years. As long as the company meets the covenants of the loans, the banks will keep their noses out. If the company fails to meet the agreed terms, the PE firm will be required to take action. This might be changing management, selling off parts of the company or injecting further cash in order to preserve the equity cushion.
After this time they will either (a) hope to sell to a bigger competitor, (b) sell to a large company who want to get into the DJ market, (c) sell to another PE firm (assuming the 2nd PE firm believe there is still an opportunity for significant growth) or (d), float Pioneer DJ on the stock market and hope the market values it at a price significantly higher than they $570m.
As Pioneer DJ seem to have a monopoly of professional installations already, I am unsure of how they can grow market share significantly. However, I don’t think $570 is a huge outlay considering this will probably include intellectual property, tooling, a distribution network, a loyal customer base who are eager to buy each new innovation.
I would not be surprised if the buyout was by a competitor (maybe NI), but funded by the private equity firm. Management would usually stay in place with the PE firm appointing one or two members to the board to keep an eye on things. If the purchase is by a competitor, there would be a more significant management reshuffle. Another possibility is that management are buying the company, also with PE support. This is not uncommon when a company is strong, management is strong but the parent company needs to sell. Sometimes the PE firm even approach the management with this opportunity and senior executive would be given a slice of equity in order to preserve the PE firms interests – increase value at all costs.
Sorry for rambling on. Regardless of what happens, interesting times ahead.
Sorry for some of my spelling and punctuation errors. Just brain dumped there.
Now that’s a comment! Thanks so much for this. I learned a lot.
Thanks.
Hollywood will often have you think that PE firms only buy companies to sell them in parts. (Thanks Richard Gere!)
This does happen but only when the sum of the parts is significantly higher than the company’s market value. It is a pain in the arse though so not really desirable.
Banks want the company to perform as if it doesn’t, they have to get involved which is not really their speciality and an even bigger pain in the arse for them.
If you are a Pioneer DJ supporter, this is probably a very good thing. A reputable PE firm is willing to put their expensive neck on the line and they don’t like having their neck chopped at and will do anything to protect their investment.
Thanks for the great comment. It seems that this kind of pump and dump strategy forgoes any investment for innovation. That by itself could kill Pioneer DJ as 4 years is a long time in any tech field. This has to be a nightmare situation for PioDJ.
I don’t see it that way. Money might be pumped but it will only be put in if it adds value. This might mean added R&D or even cost saving measures but more likely means they will purchase someone else’s R&D and assimilate this into the Pioneer business model. I think this will make Pioneer stronger, not weaker. I would actually be more worried for Pioneer’s competitors.
I know it could never be, but I’d love Allen & Heath to buy Pioneer to troll everyone. Rebadge it all.
A&H would have to upgrade the insides too
Burn.
pioneercrosoft
IKEA-DJ. To keep costs down you assemble it all yourself.
IKEA buys Pioneer DJ so that they have a steady supply of gear to stand on Nornas and Kallax shelves in store. That’s a good one.
As a profitable brand we probably won’t see many obvious changes. However
as it is Gibson Pro Audio (IMO) buying Pioneer DJ I am slightly concerned,
their track record with other brands (Stanton, Cerwin Vega) seems to be to
grind them to a halt – anyone tried to get a CV spare or Stanton stylus
recently? Plus the less said about the SCS.4DJ & DJC.4 the better! Hopefully
I’m being over-the-top but if a business can’t work behind the scenes then it
will definitely never work for us – the end user.
We were just kicking around the idea of Gibson. It’s a possibility given their other brands.
The three main players within the DJ industry would be inMusic, Gibson, and Uli Behringer’s Music Group. They have the money and clout to pull off such a deal. But most likely it’ll be an equity fund manager like Electra Partners, who you may recall bought Allen & Heath for $43m and Calrec for $23m. $570m is however quite a leap from that, but if the numbers add up, then why not?
Thanks for the info Mark – amazing to see how all encompassing those 3 are! It would make quite an eye-opening read (for me at least) to see some sort of flow diagram depicting the DJ industry and who owns what. The reason I think Gibson is from the Reuters story “in June agreed to sell most of its loss-making audio-video operations to a consortium comprising Hong Kong-based Baring Private Equity Asia and audio equipment maker Onkyo Corp” with Onkyo being a Gibson Brand it is of course still a big leap from purchasing a unprofitable AV department to an obviously profitable worldwide DJ brand, but stranger things have happened…
It kinda looks like another inMusic acquisition, to follow suit with the Denon and Marrantz buy-ups. Although until it’s made public we won’t know for sure.
bill gates :)
I heard the Cabassos are going to buy it
Do you mean Ike?
I don’t necessarily see this as a bad thing for Pioneer DJ but of course that depends on who buys it. If it is another music equipment company, it is hard to imagine that they will want to harm the “Pioneer” brand to benefit their own, possibly inferior brand. Also, as Mark mentioned, it is hard to think of an obvious competitor who could afford Pioneer without significant help and whoever that is, they will be keeping an extremely close eye on how their money is invested.
If Pioneer are bought by a Private Equity firm (without input of another music industry player), it could get very exciting. Pioneer’s existing management would be given a pile of cash with the aim to increase value. This could mean other strong or undervalued businesses could be the target of Pioneer DJ – NI, A&H, Serato and others could be up for grabs. Pioneer (or the PE firm) could even attempt to buy NI and Serato. Imagine how that would fit in with their new turntable.
PE analysts are very thorough when they research their targets. They will be aware of every market player and the intricacies of the pro and consumer DJ market and the DJ software markets. They won’t knowingly allow Pioneer DJ to lose value.
My main concern would be if there was a major cost cutting initiative which caused quality to drop but I expect they would work hard to protect the integrity of the Pro lines.
Not the first time Pioneer tried to sell the DJ business. Only difference is this time they have a couple of profitable quarters behind them (thank you Serato).
Not the first time Pioneer tried to sell the DJ business. Only difference is this time they have a couple of profitable quarters behind them (thank you Serato).
MAybe if they lowered their prices they could push more units.
And make less profit per unit? How would they be able to afford giving away CDJ/DJM to every major club and touring DJ that uses them.
Maybe. That doesn’t seem to be their goal, however. You could say the same thing about companies like Apple or Porsche, who have INSANE profit per unit compared to many of their competitors, but seem to be doing just fine having the huge markup.
That being said Pioneer could stand to drop their prices just a little. Things have gotten out of hand (but Pioneer isn’t nearly the only DJ equipment company doing this).
Let it Rane on Pioneer!
Here’s hoping that the new Pioneer owners and management are more competent. Recent Pioneer releases have been buggy, their update process has been abysmal bordering on negligent and quite frankly I’d lost all faith in them as a brand. Here’s hoping that they start producing (and supporting) decent hardware again. Unfortunately for them, they’ve missed the window of opportunity to have me as a customer this time around.
Sorry but as a owner of the CDJ 1000 MK2, MK3, 2000, DJM 850 and DDJ SX, I would say they have and still make great hardware. I’ve never had to use their support as never really had any major issues that couldn’t be solved via Google. You must have been unlucky.
The hardware is nice. The way the players feel to use has (IMO) still to be matched by any other manufacturer.
I used to think the same way you did. I’ve owned CDJ-800s, CDJ-200s, CDJ-400s, a DJM-707 and used CDJ-1000s. They were all solid hardware from a simpler time. Then I bought a pair of CDJ-2000 NXS (which I still own). These have far more complex software, were extremely buggy on release, and Pioneer’s handling of software updates has been abysmal. Apparently the XDJ-R1 has been plagued by similar problems, which is a real shame because it looks like another amazing piece of hardware with missed potential.
Here’s the issue. We really don’t want mission critical hardware like the CDJs being shipped with showstopper bugs such as locking up when using hot cues, but I’m a network administrator by day and studied software engineering, so I know these things sometimes go wrong. The question then becomes “how do you deal with fixing things when they go wrong?”. Pioneer get that badly wrong.
When there IS a critical flaw in one of their products, the update time is measured in months. When new updates ARE released, they have been known to break other features. One update for the 2000 NXS resulted in freezing when using the needle search strip. If you’re going to ship updates that break a feature that badly, you need to either have a way to roll back something that’s broken, ship a new update to resolve the issue EXTREMELY quickly or (ideally) both. Pioneer did neither. They actively try to prevent you from rolling back a broken update, and take over two months to roll out a new update that may or may not fix the problem that you’ve been experiencing. The software is getting more complex, and Pioneer haven’t wrapped their heads around that the new generation of hardware requires a newer, more carefully considered approach to development and ongoing support.
I’ve lost faith in the company, and won’t be buying any more Pioneer hardware unless they can prove that they’ve got their act together again. I’ve been buying new hardware for my mobile rig over the last month or so, and suffice to say they’ve lost some very high value sales. Don’t get me wrong, I genuinely hope they turn things around, but so far they’ve shown no signs of taking criticism onboard. The onus is now on them to show they can still deliver quality, reliable products, and as far as I’m concerned all their new products are suspect until proven otherwise.
lol at the “ideas” – very good