Make no mistake – music production is attracting investors. Just weeks after announcing it was acquiring a majority stake in Native Instruments, Francisco Partners now will create a parent company for both NI and iZotope, making two of the largest names in audio software “sister companies.”
You can read the corporatespeak if you really want to, but let me boil it down for you into actual human terms.
It’s not a merger. There’s a new parent, but the two companies operate independently.
There are no changes to leadership. Constantin Koehncke continues as CEO at NI (a role he entered on 1 October). Mark Ethier, co-founder of iZotope, continues as their CEO. They will now be “co-presidents of the group.”
Group what now? So, this is funny, in that the group seems to not really have a name yet. They’re calling it the “music and audio creator group,” all lowercase. But that is an umbrella company, formed by Francisco Partners.
NI is already owned by an equity firm. The USA firm Francisco Partners has a majority stake in Native Instruments. That majority stake it acquired in January from Munich-based EMH Partners, an investment firm. Here’s the basic timeline:
In 2017, EMH made a major investment in Native Instruments. I made fun of their bright blue suits and commented that words in business press releases seem not to mean anything, the sort of behavior that may explain why I’m not a highly sought-after business journalist.
In 2020, EMH invested more and got a controlling stake in the company; NI shareholders retained their minority stake but NI ceased to be independently-owned. That news was probably overshadowed by the management shakeup – Daniel Haver and Mate Galic out, Constantin in.
EMH retains a minority share in NI, and is listed as a backer for the new parent group.
It seems iZotope now has a mirror arrangement. iZotope had been seeking funding. In a conversation with CDM, they declined to discuss further details of the funding side of the arrangement. But for the “parent group” (whatever it will be called) arrangement to work, it’s a safe bet that iZotope also got a major investment from Francisco Partners.
It’s all about growth. It’s funny how many people in the music tech business see private investment and assume that means the company is in some kind of trouble. I think that says something about some of the players in our industry – having watched events like retailer Guitar Center regularly flaming out (most recently at least with a pandemic to blame) or online giant SoundCloud getting emergency funding in 2017 to avoid (reportedly) actually pulling the plug.
So you may need to adjust your expectations – the industry is growing, fast. And in the midst of an unprecedented global economic catastrophe, it seems one of the markets that is expanding is people buying plug-ins and whatnot.
I don’t think it’s fair to view that exclusively as a side-effect of the pandemic – investors had to have their eye on this segment to even notice that it exploded over the last year. And even as we see again and again that selling music consumption isn’t a great business, we also see time and time again that music creation is something a lot of people are into. But the pandemic clearly hit the gas on that trend, like so many things in our world right now.
How much growth? iZotope saw a 72% increase in product usage and an 82% increase in new customers. (The usage number is interesting, too – so people really did use that lockdown to not just buy some stuff with the hopes of spending time with it, but actually did spend time with it.)
Why iZotope in addition to NI. Why would investors add iZotope to their scopes after Native Instruments?
iZotope I think stands out in that they cover multiple markets and for multiple skills sectors and have some serious engineering competencies.
They’re in music production and creation, but also lead in mixing and mastering, audio restoration, and post production. (Those areas overlap, obviously, but not everyone can say they have leaders in each market the way iZotope does.)
Furthermore, while they have high-end advanced offerings for each of these, they’ve also figured out entry-level tools and some ways to use these to funnel people to the higher-end products (particularly for things like Ozone for mastering and RX for restoration).
The Cambridge-based company is also deep from an engineering standpoint, and they have a long-standing investment in machine learning of various kinds that they’ve also gotten into their products.
What’s the end game? All this being said, it’s also not hard to imagine that what Francisco have in mind is building a larger stable of these kinds of developers. iZotope and NI both have huge catalogs, so maybe they’ll stop there – but maybe not, especially given the nebulous presentation of an unnamed parent group.
Adding strong portfolios and investing in growth could be good news for investors if it pays off, and I do believe in the payoff potential of the industry. At the same time, let’s get real. It could be bad news for some users, if a tool you use is deemed superfluous to the bottom line. (Even the most obscure discontinuation usually does get howls of agony from users.) There are simply areas of music and sound that are more specialist-focused than others. Sometimes that involves high-end products with great margins. But sometimes it can be a labor of love, and we’ll see if those labors pay a cost for this more growth-driven age in music software.
Who is Francisco Partners? The other thing to note here is that Francisco Partners is a big, big player. They’re in San Francisco, London, and New York, and are one of the best-known names in technology investment. They’ve raised $24 billion of capital to date.
Francisco has responsible investment policies you can read in their words, but some of their portfolio is likely to raise eyebrows – big tech now includes things like cybersecurity. (The one that might get the most attention didn’t last long, though – Forcepoint, the cybersecurity company that was formerly a division of giant defense company Raytheon, got snapped up by Francisco in October but they sold it again in January.)
What’s next? There’s not so much to say about this deal now. I think we’ll have to wait and see. I’ll try to talk to both Constantin and Mark to better understand their vision for the future. And from a musician and customer standpoint, we’ll see if they can use this investment to drive stuff we want to use.
The full release:
Today iZotope, the experts in intelligent audio technology, and Native Instruments, the leading manufacturer of music creation products, announced that they have teamed up to form a new technology group backed by Francisco Partners and EMH Partners. Both companies hold a shared vision of a seamless creative experience and are creating this unprecedented alliance to shape the future of music making and audio production.
With strong identities of their own, Native Instruments and iZotope will each continue to operate independently, serving the global creator community with the strength of their unique capabilities. There will be no structural changes to either entity, with both continuing under the same leadership, and with the same accomplished teams. Mark Ethier, co-founder and CEO of iZotope, and Constantin Koehncke, CEO of Native Instruments, will work alongside each other on the future and vision of this new alliance as co-presidents of the group.
There’s never been a more exciting time for the production of sound, with the appetite for a streamlined experience only increasing. The goal of this alliance is to better support the creative community through close collaboration, the sharing of knowledge and technology and the enhancement of product offerings. As a collective force, this duo will generate a more cohesive audio ecosystem, to help creators no matter where they are in their journey.
As Mark Ethier, iZotope co-founder and CEO, explains, “iZotope and Native Instruments share the same mission to inspire and enable creativity. We both look to make it easier for engineers, producers and musicians to realize their creative vision, and together, we will be able to break down barriers that have stood in the way of that goal for decades. With iZotope’s intelligent processing, and Native Instrument’s innovative offerings, I can’t wait to see what artists will create.”
Constantin Koehncke, CEO of Native Instruments, adds, “As more and more people are getting into music making they are looking for easy access to the building blocks for their journey. Joining forces with iZotope brings us yet another step closer to fulfilling our shared mission to empower producers of all levels with everything they need — from instruments and effects, to a supportive and thriving community. I cannot begin to imagine what our combined talent and technology can come up with to inspire artists and music creators worldwide.”
“Through our personal passions for music, we find Native Instruments and iZotope to be two impressive pillars of the audio creation industry. As we have gotten to know each company and their teams, we are convinced that they will transform and expand the industry by working together, ” concludes Matt Spetzler, Co-Head Europe and Partner at Francisco Partners. Adds Mario Razzini, Principal at Francisco Partners, “Our role is to champion their shared mission, providing strategic business support and resources to enable their success. We can’t wait to see what this group accomplishes for producers, engineers and musicians.”
Founded in 2001, iZotope designs software, plug-ins, hardware, and mobile apps powered by the highest quality audio processing, machine learning, and strikingly intuitive interfaces. Their intelligent audio technology helps musicians, music producers, and audio post engineers focus on their craft rather than the tech behind it. This past year marked a surge of creative expression within the iZotope community, with a 72% uptick in product usage and an 82% increase in new customers over 2019. Flagship innovations—like Ozone for mastering, RX for audio repair and the Spire recording platform—are the industry standard for people working in music, TV, film and podcasts, with accolades that include two Primetime Engineering Emmy Awards and a Scientific and Engineering Award from the Academy of Motion Picture Arts and Sciences. To support this new endeavor, Stifel acted as exclusive financial advisor to iZotope.
About Native Instruments:
For more than 20 years, Native Instruments has been at the heart of musical innovation. They have established communities, pushed technological boundaries, and opened new creative horizons for amateurs and professionals alike. Since its founding in Berlin in 1996, Native Instruments has become one of the largest and most influential companies in the music technology industry, providing hardware and software to more than 1.5 million monthly active creators – from award-winning artists to first-time producers. Driven by their mission to make music creation more inclusive, Native Instruments aims to provide seamless experiences for music makers with more accessible points of entry. This past January, Francisco Partners, a leading global investment firm that specializes in partnering with technology businesses, invested in the company to help accelerate its growth trajectory.