Spin off those spinning CDJs. Pioneer DJ is now a separate company, sold to an equity firm in New York at the price of roughly US$551 Million.
Pioneer Corp in its past form was diversified in the old-fashioned model of Japanese brands. So, yes, it made the mixer and the CD player in your discotheque … but also your car stereo, and iPod docks, and earbuds, and a system for monitoring your cycling activities while you pedal bicycles, and it put its name on all of them. (This is the same country where the Yamaha brand is on both jetskis and grand pianos, after all.)
Now, that changes. Pioneer already dumped the home audio-video business to an Asian private equity firm (controlling stake), splitting the rest with Onkyo. Next, Pioneer Corp is divesting the bit we care about: Pioneer DJ. So yes, your DJM mixers and CDJs – and soon new turntables – get made by one company, in the DJ business. Pioneer Corp meanwhile focuses on car stereos.
The timing comes at an interesting time; Pioneer DJ is celebrating its 20th anniversary. But can you read some sort of deeper meaning into what’s happening in digital DJing? Not necessarily, no. The company is healthy and from your perspective as a Pioneer user, nothing much is likely to change visibly.
Instead, this appears to be what happens when Japanese conglomerates decide to focus. And that leaves an American equity firm in this case to snap up the business and try to make money as it grows.
The buyer is none other than Kohlberg Kravis Roberts (KKR), the leveraged buyout company made famous by Barbarians at the Gate, a book that chronicled the dramatic story of KKR’s attempted purchase of RJR Nabisco. Yes, that’s RJ Reynolds, the tobacco folks, and Nabisco, the snack people. See also Altria: the 80s were all about getting rich trying to kill you with crackers and cigarettes. I know about this chapter in business history first-hand, as my Dad was working for a company in the sights of legendary corporate raider Sir James Goldsmith, in that case a company involved in retail, insurance, and tobacco.
KKR isn’t really a corporate raider these days in that mold; they’re just a hugely successful equity company that shops for companies a lot. And now they’re looking at Japan, already having bought Panasonic’s spun-off healthcare unit. Two solid bets in the current globalized world would certainly be old people and ravers. See Sophie Knight writing for Reuters for some background.
The deal is a share purchase agreement, by which KKR & Co. LP purchases shares of a newly-spun off company consisting of the former “business division that engages in the development, manufacturing and sale of DJ equipment.” Just over 85% of the company is owned by KKR with the remaining minority stake going to Pioneer Corp.; “Pioneer DJ” is the provisional name of the company. (See press release at bottom.)
Especially relevant in the wake of the Apple/Beats deal, that includes headphones: “DJ players, mixers, controllers, headphones, and speakers.”
If you think Pioneer was diverse, KKR is just about money. They own the Chinese farming giant that sells chickens to KFC. They also have wind farms. Their portfolio includes a Milwaukee company that makes industrial blowing machines, Go Daddy (the domain company), an off-highway tire company, and the water and wastewater company in Bayonne, New Jersey, to name just a few. David Petraeus, the American former NATO commander, works with them to talk about global opportunities.
I don’t yet know how the new business will be structured, so this is all speculative. But here’s what’s most important: Pioneer DJ sounds healthy, and this may give them more resources while their previous parent worries about what’s happening in your Volkswagen.
The Pioneer DJ staff are moving to the new spun-off company. (700 in total go to that company and the new audiovisual group at Onkyo according to Reuters; we don’t have breakdowns.) And the business is profitable, if dwarfed by car stereos.
Here’s Reuters again:
Kotani said that the DJ business was highly profitable, running an operating margin of nearly 20 percent on sales of 21.6 billion yen in the year ended March 31, giving it a 60 percent share of the global market, but further growth in such a niche business would require significant further investment.
20% margin on roughly US$200 million – nice margins, but small, in other words. Presumably KKR could then make the sort of investment that could make that grow. With club culture booming worldwide, that’s a big deal. Remember, we’re mostly focused on the US and Europe, but clubs are about young bodies, and the youth population is booming in the rest of the world even as it shrinks in just those places. So if you want to speculate about the future of DJing, the question may not be what, but where.
In fact, the DJ business to me sounds safer than the car business. Pioneer has effectively no competition for devices like the CDJ and a growing market for everything it makes; the cuthroat car stereo business means going head to head with some of the world’s largest car companies inside their own vehicles.
See Mixmag – though I disagree with the notion that the introduction of a new turntable changed the buyout picture.
I do agree with Dan White at DJ TechTools. The parallel here is Allen & Heath’s sell-off. The only difference there was the equity partners were in the UK rather than US, but the ultra-diversified company is in the same model. And sure enough, Allen & Heath has continued strong since that happened in the middle of 2013.
So, in other words, unless you are weirdly fascinated by 80s corporate raider culture as I am and this sends you off on into a link-hole, there’s nothing to see here; move along.
For DJs, this probably changes nothing – and, if anything, ensures Pioneer’s power in the DJ booth will remain formidable for the foreseeable future.
Seriously, CDM should probably talk more about CDJs. It’s hard to imagine music in clubs today without them.
Pioneer and KKR Agree to Pioneer DJ Share Purchase [KKR Media Release]