ComCom delays $116m Serato deal decision for sixth time after DJ software firm tries two new arguments

It’s the gig without end.

It was July last year when Japan’s ATC (owner of the Pioneer DJ hardware brand) signed a deal to buy Auckland-based DJ software maker Serato for about US$70 million ($116m), according to ATC market filings.

A decision was due today but mid-morning the Commerce Commission said it had pushed out the date to July 18 - the sixth time the regulator had delayed its final decision.

No rationale was given beyond the boilerplate, “The commission will seek an extension to its decision date when it requires additional time to reach a decision.”

Serato co-founders AJ Wilderland (left) and Steve West first met in the late 90s at the University of Auckland. They stepped back from day-to-day management of the firm years ago but retain majority control of its shares.

In its latest submission, dated June 17, Serato and ATC push two new arguments: That the NZ portion of Serato’s global business is too small for the ComCom to concern itself with the deal; and that NZ’s spirit of entrepreneurship will be crushed if its founders Steve West and AJ Bertenshaw (now AJ Wilderland), who formed the company after meeting at Auckland University in the 1990s, are denied an exit.

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A June 17 Serato-ATC submission (the latest in a series of submissions and counter-submissions that now tops 40) gives a dollar figure for Serato’s DJ software sales in NZ last year. The figure is redacted, but the submission says the amount “can be thought about as roughly a single day’s revenue for a single large supermarket. However, unlike spending at the supermarket, expenditure on Serato DJ software is highly discretionary in nature. On any measure, the risk to New Zealand consumers from the proposed transaction is vanishingly small”.

Serato: Founders can’t cash in and support other start-ups

It also argues West and AJ Bertenshaw (as the submission refers to him) want to “cash out and recycle cash into ‘the next big thing’”.

In West’s case, that is EV charging network start-up ChargeNet. For Bertenshaw, it is GoodFor (a zero-waste supermarket chain) and Elysian Pharmaceuticals (a natural wellness product importer and health clinic).

“These are the New Zealand business stories that we need to encourage and foster if we are genuinely interested in the long-term benefit of New Zealand consumers. The commission blocking the Serato founders’ best path to exit would do the opposite,” the submission says.

InMusic: Fine with founders selling, just not to Pioneer

InMusic - the US-based owner of an array of DJ hardware brands, all running Serato software - has been arguing it would be anti-competitive for Pioneer DJ’s parent to take control of the Kiwi firm.

In its counter-submission, dated June 24, InMusic argues it is not seeking to block Serato’s founders from selling their business - just selling it to Pioneer DJ owner ATC.

It encourages the ComCom to keep its eye on the bigger picture. InMusic has long argued ATC could raise prices or withhold new features from DJ hardware brands outside its own Pioneer if it took control of Serato, whose software dominates the sector.

ATC has pledged it will allow Serato to operate independently. InMusic says in its June 24 submission: “ATC would not be paying over $100m plus substantial earnouts only to continue to operate Serato as an independent entity.”

OIO hurdle cleared

After gaining Overseas Investment Office approval on September 7, ATC took a run at its second and final regulatory hurdle as it applied for Commerce Commission clearance on October 10 – a process that typically takes about two months.

The regulator set December 22 as the decision date. But it came and went after the US and NZ-based InMusic (owner of Rane, Denon DJ and a host of other DJ hardware brands that use Serato’s software and compete with Pioneer) mounted an energetic attack on the deal.

InMusic's US-based owner Jack O'Donnell travelled to NZ to lobby against the ATC-Serato deal.

London calling

The previous delay, announced on May 10, came on the heels of the UK’s regulator completing a “Phase One Investigation” that highlighted several potential party-killers.

Serato makes software for living-room DJs and dominates the market for the pro software used by multiple makers of DJ hardware, such as the decks used to play tracks at nightclubs, events and concerts.

Then-Prime Minister Dame 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 a development hub in New Zealand in 2018 after buying Kiwi firm SoundSwitch. Photo / Getty Images

If the deal goes ahead, it “could see DJs paying more to keep partygoers entertained”, the UK’s Competition and Markets Authority (CMA) found.

CMA executive director Joel Bamford said:

• DJs and entertainers depended on having access to the best equipment and software to put on a good show.
• The deal could substantially reduce competition in DJ software, resulting in increased prices, less innovation and less choice.
• The authority was concerned it could negatively affect the hardware markets by allowing the combined business to leverage Serato’s leading software to harm its hardware competitors, ultimately affecting DJs and consumers.

The CMA has asked ATC to address its concerns.

Leaning towards ‘no’

The Serato deal was already looking in need of a remix.

In a February 8 statement of issues, the Commerce Commission said it was “not currently of the view” the deal met its benchmark for approval. The regulator assesses whether any deal would substantially lessen market competition.

A ComCom red light would effectively kill the deal. ATC’s Overseas Investment Office approval is conditional on ComCom approval.

Serato was founded in the 1990s by West and Bertenshaw, who remain its largest shareholders although they stepped back from its day-to-day running years ago.

Read a backgrounder on the Serato deal, and the firm’s financials, here.

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.