Adobe bids for The Foundry

[Shawn Miller]

As much as I like Adobe, I’m not sure I like where this might be headed. I’ve been thinking for a while that the future of post production software was going to be subscription or subsidy; purchase a subscription from a large software company, or get inexpensive (or free) applications from hardware companies which can subsidize development costs. If I’m right, I don’t think this will be good for consumers or small developers in the long run. Hopefully, I’m not right.

Shawn

[David Mathis]

I was hoping AJA would acquire The Foundry not Adobe. I am concerned over this move as well. At least Fusion won’t drain your wallet completely empty. Adobe should consider making hardware then perhaps the rental only fiasco would stop or at least slow down. My two cents.

[David Roth weiss]

Dave,

Unlike ever other NLE manufacturer, including Avid, Apple, Sony, Blackmagic, Grass Valley, etc., Adobe is a software ONLY company, and they have never manufactured hardware. Why would they change that now, and what in your opinion would that achieve?

David Roth Weiss
Director/Editor/Colorist
David Weiss Productions

David is a Creative COW contributing editor and a forum host of the Apple Final Cut Pro forum.

[Shawn Miller]

[David Mathis] ”
I was hoping AJA would acquire The Foundry not Adobe. I am concerned over this move as well. At least Fusion won’t drain your wallet completely empty. Adobe should consider making hardware then perhaps the rental only fiasco would stop or at least slow down. My two cents.”

I guess I see it differently. I don’t think it’s necessarily a good thing that hardware companies can give premium software away for little or nothing. Maybe a free version of Fusion won’t drain your wallet, but what’s the incentive for a hungry young start up to launch a competing product? In truth, I’m not against subscription software or hardware companies developing software. What (IMO) is bad for consumers is a landscape in which smaller developers can’t compete with very high quality products that cost next to nothing to purchase.

Shawn

[David Mathis]

I have nothing against renting software but when there is not a clear exit strategy I am reluctant to subscribe. Nothing personal just a business model that I respectfully disagree with at the moment. In the event Adobe has some type of buyout option I will consider changing my position.

With that said, intersted to see what Adobe has planned. Will be interesting in a very good way.

[Scott Witthaus]

I find it interesting that Carlyle had to hire another firm to “drum up interest”.

Scott Witthaus
Senior Editor/Post Production Supervisor
1708 Inc./Editorial
Professor, VCU Brandcenter

[Ricardo Marty]

I guess its a little of many things like:

buyingout a competitor, buying and getting all the tecnology and putting it into adobe or some newer higher end fx app. perhaps the bm purchase of fusion could have them scared.

ricardo marty

[Tim Wilson]

Blackmagic makes this sort of thing look easy. And hey, Nuke doesn’t look much different than Fusion, right? You click it, it opens, right? No big deal.

The difference is that this sale is proposed in the $200-300 million range, with nearly 400 employees. Compare AJA for example, with only 200+ employees. This is the definition of a big deal.

It happens that I talked about this very scenario back in December, when Carlyle first announced that The Foundry is for sale. I talked about it at ridiculous length, which I’ll summarize here.

I concluded that Adobe is the only realistic buyer.

Before I begin, two typical caveats:

1) I’m speaking solely for myself, and;

2) I’m an idiot. Few things would surprise me less than being wrong about major particulars in this.

But the major-est particular so far appears right on target.

Now then….

Another investment group won’t buy The Foundry. Carlyle’s asking price is triple what they paid for it just three years ago!!! It’s not a BETTER deal 3 years later at 3X the price. Every investment group that passed before is passing again.

Can’t be AJA or BMD. That December post has a lot of very carefully reasoned points, but the big one that I failed to include: They would have to pay cash..

Why? They’re both private! They have no stock to offer!

I admire both of these companies immensely. I also think we can agree that there’s no point betting on the limits of BMD’s acquisitive ambition. But it seems unlikely that either company has a few hundred million dollars in cash laying around.

Autodesk is out. Again, see my December post for a long and reasoned summary, but here’s what takes them completely off the table for me: a $250 million deal in the architecture space in February, I think the biggest in their company history. Feels soon to do another of such a similar scale.

(For reference, the last 9-figure Autodesk deal I can recall before this: $197m for Alias in 2006. Most are much, much smaller, such as $35 million for Softimage in 2008.)

I admit that I’d kept sniffing for Autodesk out of the corner of my nose, because they were the only other ones even theoretically in the game. That February deal is the one that reinforced my first impression, though. Not a chance I think.

Here’s the speedy summary of why I think Adobe is the best fit, and maybe the only realistic fit.

Adobe has the dough. Adobe also has the financial and structural resources to quickly take on another three or four hundred employees. Don’t underestimate the importance of that.

(Which also serves to emphasize the unlikelihood that Autodesk can take on 400-ish people so quickly after their last deal.)

Also, Adobe can likely pull off whatever stock / cash mix Carlyle is looking for. Macromedia was an all-stock deal, and haters gonna hate, but Adobe’s stock has been a big mover in same span that Carlyle has held The Foundry. Maybe Carlyle is looking for discounted stock.

Adobe also has cash. They paid $800m cash for Fotolia in December, although, again, this might disincline them to drop another 9-figure deal again so soon….

…but whatever the mix that Carlyle is looking for, a deal on this scale by no means appears to be a stretch for Adobe.

Perfect workflow fit. Adobe is clearly doing more than just a suite in our space. I have no idea what wonders for the world beyond ours may be hidden in The Foundry’s products, technology, or people, so I think we are ill-advised to focus solely on what this deal means for M&E…

…but ima do it anyway. LOL

After Effects in feature production is regularly used as a feeder to Nuke. Not exclusively, but the prospect of tightening up the workflow from Premiere (or, with Adobe’s new offerings even pre-Premiere) through After Effects all the way through Nuke has to have them drooling.

There are other people who can stake a legit claim for reaching from editorial to finishing…but virtually all of those projects still touch After Effects and Nuke at some point. Add that to the primary goal of Adobe expanding its own end-to-end pipeline, and this is a workflow nerd’s dream come true.

[Scott Witthaus] “I find it interesting that Carlyle had to hire another firm to “drum up interest”.”

Dang right they did.

I noted in December that the fact that any of us know any of this is highly suspicious. Deals this size are announced to morons like me AFTER they’re made. And why has the £150m – £200m figure, or the story around it, not changed? Lazy reporting? Wishful thinking on Carlyle’s part? None of this is looking good.

One thing that jumps out at me in this new article that I hadn’t seen in December coverage: The Foundry is making only £10m/year??? And Carlyle wants to sell for £150m – £200m???

Adobe seeing an opportunity for synergy is one thing. It could easily entice them into paying a higher-than-usual multiple. The 15-20x that Carlyle is asking, though?

I’m betting the under.

In fact, my guess is that, with no major rival, Adobe is exerting considerable downward pressure on the price. Carlyle hasn’t found the lever to press back, so they hired someone to help beat the bushes for another well-heeled, sympatico suitor.

Sad trombone sound. LOL I could have saved them a lot of time and money.

There are also many, many things we didn’t know in December that we still don’t know. On the seller’s side alone: why does Carlyle think they’ve tripled the value of The Foundry in 3 years, why are they selling now, how badly do they need the money, etc.

Noting again that I’m skipping a lot of the lengthier points I made in December, it seems less likely than ever that there’s even one more major suitor besides Adobe.

Noting again that I also have no idea what the hell I’m talking about. I’m just ruminating the way cows do, so watch where you step.

Anyway, I loved this deal in December, and I love it even more this spring.

I hope it happens, not just because it’d make me right, but because I’m a fan of Adobe, I’m a fan of Nuke, I’m a fan of ever-juicier workflow goodness, and I’m a fan of deals like this that swing for the fences.

Although who’m I kidding? I mostly just want to be right. LOL

[David Roth weiss]

Nice analysis Tim!

What strikes me about the extremely high valuation the Carlisle Group is placing on Nuke is that they are not only up against Blackmagic, they are up against BM’s model of giving away the software either for free, or for close to free. For example, Resolve Lite is free, the paid version is just $1000 – Fusion 7 is free, Fusion Studio is just $995.

While Adobe can certainly afford to pay the asking price for Nuke, and could even afford to eat that by killing the product if they determine Nuke is either not a fit, or somehow hurts their After Effects business, it seems to me they’d only buy Nuke if they truly intend to develop it further. And, that sounds like it could be a race against BM to the bottom, which BM usually tends to win.

Just for the record, by saying BM wins the race to the bottom, I’m not saying they produce crap – far from that, they just tend to use their acquisitions to enhance their huge product line, which spreads to cost over their entire huge product line and takes the pressure to make a profit off any individual product in their mix. Unless Adobe wants to knowingly spend a bloody fortune to follow BM down that same path, I think they would do better to either pass, or to lowball the Carlisle Group to get Nuke at a much more reasonable valuation.

BTW, while Nuke now has a free version of their software, giving them some head to head competition against the free version of Fusion, their free software does NOT appear to offer unrestricted commercial use, like the free versions of Fusion and Resolve do. So, Blackmagic’s model may already give them a significant advantage in capturing new users, which traditionally tends to ensure product sustainability, at least it has at BM.

David Roth Weiss
Director/Editor/Colorist
David Weiss Productions

David is a Creative COW contributing editor and a forum host of the Apple Final Cut Pro forum.

[Aindreas Gallagher]

Nuke beats Fusion like lava beats paper. To the potential shared CC experience, if you go down to UK based EA (he said randomly), you are asked to version out core engine work executed in nuke. Where an american flown in produces the shots, and he has his own bokeh defocus raw code recipe as well as directorial chops. Using AE for 15″ cutdown endboards you are producing foreign subtitles using trapcode and twitch. Nuke is royalty, you are an AE butler / footman.

If adobe have bought Nuke, they’ve basically bought the current Jedi temple.

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