Reply To: Native Instruments Insolvency and Updates

[LinkedMusicians]

On Brian said

I wonder if any comparisons can be drawn from the Magix insolvency that I believe was filed two years ago?  I am not interested enough to dig, and I would be reliant on translation as I don’t speak a word of German.  I did find the following recent press release regarding Magix that you can translate via browser.  I think they are small potatoes compared to NI, but they appear to still be selling and updating software products.

 

https://www.indat.info/Meldungen/Pressemitteilungen-Insolvenz-Sanierung/Erfolgreiche-Sanierung-der-Magix-Software-GmbH-d6579054b839094a54bbe5fa85d1eed8

I’m not as familiar with the circumstances around Magix insolvency, but I don’t believe that Magix insolvency was a result of a bunch of acquisitions and the enormous debt accumulated, but was more about their existing product lines and market choices. I believe that my explanation of the acquisitions, the irresponsible debt that NI accumulated, and the pricing disruptions in the audio production plugin and sample library industries combined to create a series of problems that NI couldn’t overcome. With the level of debt that NI accumulated, even without the pricing disruption that occurred, starting around 2023 — just after their acquisition spree — I think that NI would have been in trouble. We’re looking at a company that brought in (in 2023) $25 million in revenue with far more than $300 million in debt. That just seems irresponsible. There’s no way to justify that. If I was in my capacity as strategy director assessing whether to buy this company, I would write a more professional version of, only buy parts of this company, by all means DO NOT take on the executive team. No responsible exec would put a company in this financial position. It’s kind to say that they were overleveraged. This enormous debt is what makes things so very uncertain for NI’s future.

There’s no way to bail out a company that brings in $25 million a year with debt of more than $300 million. What is guiding everything is credtiors desire to get as much of their money back. They could decide that the best method is to dissolve NI completely, to sell it for parts. But the big thing that makes that less likely is that it won’t bring them the most money. Their best hope of getting more of their money back — and they aren’t going to get much of it back no matter which path they take — is to keep part of NI together that can still make a profit, and I think the best hope for any part of NI to make a profit — and this is definitely based on assumptions, not looking at their financials — is by cutting down what NI operates to their core product, Kontakt, and the ecosystem around that.

I seriously doubt that Magix had anywhere near the level of debt that NI has. That company survived and was later bought. The analysis I’ve seen of why Magix insolvency occurred was a complex product portfolio, failed, slow adjustment of cost structures, and rising interest rates not an astounding amount of debt vs. earnings (because Magix, like NI is private, we don’t know their EBITDA ratio; we only know NI’s because of some documents made public after a failed acquisition).

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