Audio pros love to mix and match plugins as they work. And every once in a while, the makers of those plugins mix and match with each other.

It seems relatively rare in the sonic world, but mergers and acquisitions (M&A) activity does happen. One such corporate convergence has just unfolded, with iZotope’s recently announced acquisition of reverb developer Exponential Audio’s product line. As a result, popular reverbs such as PhoenixVerb, NIMBUS, R2, R4, Excalibur, Stratus, Symphony 3D and many more are now distributed and supported under the iZotope umbrella.

Founded by the highly respected reverbmeister Michael Carnes in 2012, Exponential Audio’s uniquely musical and powerful reverbs were quickly lauded by the music and postproduction communities – a popularity that would eventually become too much for him to manage. Meanwhile, for all of its innovations as an audio software developer, iZotope’s CEO Mark Ethier saw his company struggling to render a reverb that met their own high standards.

That’s where the beautiful world of M&A comes in. In this candid conversation between the two, you’ll see the strategic thinking that makes an audio acquisition unfold. From there, the art of transitioning from two brands to one, the subsequent update to the customer experience, and retaining the brain trust are all covered.

Finally, get a look ahead to the next level breakthrough that these two are now brewing. It’s all part of the sonic osmosis that occurs when audio meets the high-flying world of finance.

Mergers and acquisitions within the audio industry are relatively rare. Why do you think this is?

Mark Ethier is Co-Founder and CEO of iZotope.

Mark Ethier: Over iZotope’s history, we have acquired four sets of products or companies. Actually, from that perspective, we are probably on the higher side of doing acquisitions.

I would say that they are relatively rare, number one because this is a passion business for people. There are other industries where people get in with the whole idea that they’re going to sell the company — this is not that sort of industry. People get into it because it’s a passion. They care about the work. We’ve definitely talked to companies and said, “Hey, wouldn’t it be awesome if we worked together?” They’d say, “Yeah but I want to do my own thing. I want that independence.” Having had this conversation with a lot of other entrepreneurs and business owners in the industry, I find that to be the most common reason.

Micheal, what’s your perspective on M&A activity within audio?

Michael Carnes: I think it’s really hard to find a match. I’ve seen it done wrong for sure.

Back in the ‘90’s I used to work for a small, well-regarded company in the audio industry. We, along with a whole lot of other companies, got scooped up by a giant corporation. It seemed like the companies were acquired because the CEO of the giant corporation loved everything they did, but there was very little thought about how the pieces would all fit together. A number of us were in direct competition with one another, so it was really hard to play nice.

It took years and years to find a way to make any of that work, and it never worked very well. So I think you have to go back from the beginning. You have to look and say, “Is there a mesh between products? If there’s any sort of competition, is it the sort that can make the products work better?” You also have to look at the cultures of the companies. If you’ve got companies with beliefs that are very different, it’s really hard to make them mesh.

Mark, what has iZotope’s strategy been on making acquisitions? What’s driving your approach?

ME: I would say primarily it is that we have a longer term strategy of what we’re trying to do as a company.

The decision to make an acquisition is usually opportunistic. I say that because, to Michael’s point, finding the right company is very complicated. You need the stars to align with culture, product and technology fit, the team fit and just the skills, and then financially for all of that to work. We don’t have a big enough industry where we can just plan that we’re going to go and acquire companies. It’s more we have a strategy that we’re pursuing.

Sometimes people approach us and we go, “Hmm, you know what? Actually, this is kind of a cool opportunity.” Sometimes we have something we’re trying to do, which is actually similar to what happened in Exponential Audio’s case, where we’ve been trying to do reverb for a while and we went out to the world looking for who does it well. Then the conversation with Michael started.

So you started exploring reverb, and then Exponential Audio’s product line got on your radar. When did that first actually happen? What was it about Exponential Audio’s line of reverbs that was particularly appealing?

ME: This goes back years ago, and I would say the first time we started hearing about Exponential Audio was from our very high end users who talked about it as being their go-to reverb. Then, as Michael got to know people in the company, I kept hearing from people saying, “Hey, this Michael guy feels like iZotope. He’s very smart, he’s very humble, he wants to collaborate and learn, and he’s done some incredible, innovative new DSP and products, especially in the reverb world.”

All of those things happened together, combined with us then doing the survey of our own offerings and saying, “We’re not doing very well with reverb, how can we do better?”

What was it about reverb that proved trickier for iZotope to pull off than expected?

ME: That’s a great question. Probably the honest answer is I don’t know, because we never really did it very well! Michael’s probably a good person to ask.

I would say, from my perspective, it’s always been a combination of arts and science. So, even though there are scientific ways to do reverb right, they don’t necessarily sound musical or realistic, and they can be incredibly CPU heavy. So one of the arts is, “How do you make something that sounds good, realistic, musical, and actually has good performance?” That was the thing we’d always struggled with.

So it seems like of the various audio effects that you made reverb a priority, as opposed to delay or saturation, or anything like that. What is it about reverb and its position in the marketplace that had you go after reverb first?

ME: Reverb is a necessary tool in post production for audio, for post production for film and TV. It is just crucial to the workflow. On the music side, it is a crucial creative tool, as well as I think a practical tool to have in your toolbox.

In iZotope, one of the things we’ve really tried to drive is where are the opportunities: We call it “systems thinking.” It’s about asking, where are the opportunities to start to cross boundaries between product categories. If we know something about each individual track, how can we make better decisions about how to master, for example? Or, if we know what’s going on in the mix, how do we master more effectively?

So, from that perspective, given how crucial reverb is to that whole process both on music and post production, being able to have something that we had full control over is not only crucial to help meet the needs of our customers today, but as we look out over the next months and years, we have some pretty cool things that we’re planning to do, both taking the technology that Exponential Audio has now and having Michael Carnes’ brain as part of our brain trust.

You’re going to start to see places where we’re blending our traditional lines and product categories. Having a really strong reverb was an important part of that longer term strategy.

On the Lookout

Michael, when did Exponential Audio start exploring M&A activity on your side? What was driving that for you, seeking perhaps an acquisition?

Michael Carnes’ obsession with reverb brought Exponential Audio into the iZotope fold.

MC: Well, it sort of came in a couple of stages. I knew fairly early on, I think within a year of the time that I started shipping plugins, I thought, “Uh oh, I’ve got a problem.” It took off way faster than I thought it would, and it just kept growing.

It’s not that I was unhappy that it happened, but it was pretty much unexpected. I realized that there would come a time that all of that technology would need a new home. It would basically outgrow me and my ability to manage it all.

So I started fairly early in keeping an eye on different companies and thinking, “Well, what about them and what about them?” I was certainly not ready to look into an acquisition, but just to get a sense to know the people at different companies, to look at how they approach their customers and how they ran their businesses. I had my naughty-and-nice list, I suppose.

iZotope actually popped up pretty early because I was getting familiar with what they made and I thought, “This stuff works really nice, and it’s just beautiful to look at.” I dropped by the booth at trade shows, and they always seemed energetic and engaged. Those were things that made me think, “That’s what I want to see. That’s what I try to do. That’s the sort of business that my solutions should go into when the time comes that it’s not something I can manage.”

As the company grows, running a company yourself is both good and bad. It’s bad because you’re wearing every hat, and you’re really trying to wear that hat uniquely. If you’re wearing the marketing hat, you can’t be resentful and say, “Well I’m really a developer, I don’t want any of this stuff.” You really have to do all of those jobs the best you can possibly do them with a smile on your face. I really tried to do that, but you reach a point where you say, “Man this is a full-time job for somebody.”

You keep on doing it the best you can, but at that point a year and a half or so ago, I realized I was just about there: It’s time to start looking at this a little bit more seriously.

When you’re talking about software, what gets more complicated as your user base grows? Why is that difficult to manage? Some people might be reading this and wonder why it’s harder to license 1,000 plugins then 100.

Because you try to document things clearly and to have all sorts of help online, but people learn in different ways. Sometimes an FAQ is all they need. Sometimes just some experimenting will do it, but lots of times they need some personal attention and they need a walkthrough. It’s important to know that English is not the first language for a lot of folks there.

So you have to treat a question like it’s the first time you’ve ever heard it, because it’s the first time that person ever asks the question. The last thing you want to do is come down on them and say, “Did you read the manual?!” Their question is asked earnestly, and you have to put all your energy into it to answer it well. It really doesn’t matter if they’re from a big studio or if they’re just somebody aspirational working at home. It takes a lot of energy to do that.

Let’s Make a Deal

So iZotope and Exponential Audio guys were both gravitating towards an acquisition. How did it actually unfold — what took it from an idea to a done deal?

ME: It was a while ago we started having this conversation, and it wasn’t quite the right timing. We were saying to each other, “Is this the right time? Is it the right time for you?”

But it was really more towards the end of last year when a series of things were going on, and it seemed like a good time for iZotope based on where we were as a company, where we wanted to go and what were some of the next things we wanted to do. The things going on with Michael and with Exponential Audio, sort of were all coming together at the right time.

I would say that sometimes these things are easy. To me, that’s usually the sign that we’re doing the right thing. Michael, I feel like you and I had a long call and sort of said, “Yeah let’s do this.” I think everything beyond that is kind of the boring legal work that goes into getting it done. It is a very huge process to make sure that we’re treating all of the steps properly. There’s a lot of complexity in something like this. So it has literally been months of work with a team and with Michael to actually get this all the way through to the point where we’re ready to bring this out to the world.

Exponential Audio’s PhoenixVerb

MC: From my perspective, I’d been looking at iZotope positively for a few years. Then about a year ago we started talking a little more seriously, and then it got even more serious in the summer and I guess somewhere in there we decided to go steady, if I could just beat that metaphor to death.

ME: Once we decided it was the right thing to do, then we had to come to sort of a high level agreement on what would be the financial arrangement that would make this a good deal for both sides. Then we had Michael and our team grill him about his code and how he approached things. That’s sort of the really serious dating phase. Everything was all positive, and that led us to then move to the next step and say, “OK, let’s do this and move forward.”

Updating the UX

So now that the deal’s complete, what’s new, and what remains the same for users of Exponential Audio solutions, as well as iZotope users?

ME: A place where Michael and I really saw eye-to-eye was simply that we would not be here if we did not have our customers. So we had to make sure that everything we could do to make that transition as easy as possible. That’s been our guiding principle, and it’s not always easy because we’re expanding from Michael being the person who knows everything about every aspect of the company — when somebody would call him up to get customer support, he knew everything. We’re trying to make sure that we do the best knowledge transfer from his brain to our team that is doing that work.

I think one of the biggest changes has been we now are bringing the products out to the world through our worldwide sales and marketing, so the products are now available to a lot more people around the world. As a result, we have customer care people who are there to help support customers 24 hours a day from Boston to Tokyo.

There’s a lot of new things that have come online as well, but I really think that we’ve tried to keep things as consistent as possible. Really our hope is that we’re going to start to bring more of the [Exponential Audio] technology into the iZotope universe, and also continue to evolve the tech that exists there, the products that exist there, bring them into some of the iZotope UI UX paradigms and continue to evolve the work that Michael has started.

Over time, the iZotope and Exponential Audio brands will probably become less distinct. You can expect that the Exponential product line will eventually come into the iZotope product line and be more native to iZotope.

Michael, what’s your perspective on the transition?

MC: The things that matter the most to me are sound, of course, and workflow. I’ve spent a lot of time trying to lay things out so that a customer can get at what they need to the quickest, because there’s a whole lot that they’re responsible for and I’ve never wanted to be the person that slows things down. A lot of it is trying to look really hard at how they can get quickly to what they need, and if they’re so inclined to dig a little deeper.

Having said that, there’s no reason the stuff can’t look a lot nicer than it does, and I look forward to seeing that. And to sort of follow up on what Mark said, yes, over time you’re not going to see any effort to keep a real distinction between the labels. What we’re hoping is that there’s going to be a whole generation of new people that maybe have never even heard of Exponential Audio because they came on board with this when it was iZotope. That’s really not a concern to me because it’s more like, “We’ll do the work right, make things sound better and make it easy to use.”

Of course, along the way, you’re going to see new products that carry the DNA of both companies in ways that maybe neither of us could have gone it alone. That’s really going to be fun to see.

Mark, continuing on that point, how might your combined strengths help you to engage people who may not be customers of either company at this time? How do you see this expanding everyone’s customer base?

ME: At iZotope, we really like to make products that are new categories of products if possible, and I would say even when we build out products that are more traditional, we always try to figure out what’s the new thing. When we’re evaluating how an idea compares against another product, usually we say, “Wait a second, should we be doing something totally different, as opposed to doing something that looks similar to something that’s out there?”

I would say we are imagining some new categories of products that don’t exist in the market today, which I think will help to give people who maybe don’t have access to as high quality audio production, the ability to do higher quality audio production. In the music and post side the work that Michael has been doing with Exponential Audio is a standard on the high end, and I think there’s some ways where we can bring that to more people.

I bet you there’s not a single DAW session that doesn’t have reverb on it. I’ve never met someone who said, “I have enough reverb.” I think that that allows us to hopefully show some people some new varieties of reverb and ways to use reverb that just haven’t been out there before.

Researcher Resurgence

Michael, you joined iZotope as a research fellow. How’s this going to allow you to expand on your exceptional body of work, which includes not only the Exponential Audio solutions, but everything you’ve done for Lexicon, which includes the 96L and the PMC96, and their plugins? What’s this going to allow you to do next?

MC: The iZotope research group, as it stands now, is just really exceptional in terms of scientific mathematical backgrounds, willingness to explore, discipline, all of those things. I look at it and say, “I’m really not sure you (I, Michael Carnes) should be in this room.”

Because my background and my training are actually in music, the thing that I bring is I have a certain practical empirical way of doing things. I’ve spent enough time in real rooms, and I record a lot of classical music. So I know how things sound and how they should sound, and generally what the cause of something is if they don’t sound right.

You’ve got to be careful when you talk about intuition, because anything that’s intuition is really based on something that you perceive. So I think being able to back off and think about things musically, and think about them in sort of a practical way, may enable some shortcuts and allow you to pare down the routes that you need to go.

R4 is an Exponential Audio reverb with its own way of doing things.

One of the things that has motivated me for the last few years is that there’s a whole lot that goes in your ears that doesn’t hit your brain in the way that’s just ones and zeros. Your brain does all sorts of data reduction. Something like reverb is an emergent effect. There’s no evolutionary pressure to be able to hear reverb: You don’t get eaten, or you don’t get to eat lunch if you can identify what the concert hall was, but it’s a mighty pleasant effect.

I think that thinking that there’s another science in there, the science of neurology and perception, is one of those things that will bear fruit, as we look down and learn how that affects music and what we like about those things. It’s not that I carry any particular education in that area, it’s more like thinking, “The solution might be out here. It may not be in the room with us right now. It may be somewhere else, so let’s just be open to expanding the way that we think about these things.”

ME: Can I add to that? First of all, I’m just going to correct the record: Michael totally belongs in that group, but part of the reason why I would say you feel like you don’t belong is that having a great research group — or any great team — is about bringing people together that have a very different set of experiences.

This is the same as putting together a great band. You put together a set of people who have totally different musical tastes and approaches. What comes out is some new synthesized thing that no one’s ever seen before. We have leading experts in physical modeling, special processing, machine learning. Putting these folks in a room that have a totally different background perspective and approach leads to things that the world’s never seen before.

That’s one of the reasons why I’m so excited to see Michael in this group, because he has a different way of thinking about this stuff than the rest of the team. That’s exactly what we need and what we want, to move this industry forward.

Michael earlier I asked Mark why iZotope was drawn to reverb, and why this was their top priority at this time — improving it in their offering. Why have you personally been drawn to reverb throughout your professional life?

MC: There’s just something about the way that reverb identifies the space. Whether I’m in a cave or in Aspen up in the mountains or something like that, you’re always listening to the sound of it. Reverb is the glue. Whether it’s a in a film or an intimate recording, it just seems to be that little sheen that makes the whole thing go together.

Next Steps: Sonic Inventions

Here’s my final  question: What do you both see as the best possible outcome of this acquisition? What additional developments could it enable a few years down the line, beyond what we’ve already discussed?

ME: I don’t want to give too much away, but I’ll tease these two things.

We are doing some really interesting work combining the scientific and mathematical power of machine learning and artificial intelligence with the art of a beautiful sounding reverb. That’s stuff right now that we are working on and we will bring to market.

The other category is going to be the places where we can start to combine our products with not only the technology that Michael has today, but things we can develop in the future to start to break down barriers between products that haven’t existed before.

For example, at iZotope we have some of the industry standard noise reduction all the way through mastering. Of course, reverb will be an important part of production in audio and music and film and TV. If we have a better idea of what the mix is going to be in the end, and what for example the reverb might mask, it will allow us to make better decisions about what we actually need to remove for noise. You can start to imagine how having the awareness, and the control across the entire single processing path opens up new possibilities in quality, and also just creative possibilities along the path. I’ll tease you with those two ideas.

You call that a tease. I call that a SCOOP, that’s what we like! Michael, what would you add to that?

MC: One of the things that I see in the iZotope culture is there’s a real openness to people pursuing their own experiments, coming up with ideas, trying them out and seeing what happens. I see so much creative stuff going on there. I think it’s very difficult to predict what’s coming four or five years down the road, because there’s so much original thinking that’s being encouraged there.

I take a historical approach to what I’d like to see happen. Over the hundred or so years that we’ve had professional audio and various means of reproducing audio, there are a number of brands that you can look at that have been signposts along the way. A lot of those brands are still with us. They are pillars of this industry, and I would really like to see iZotope be regarded that way as time passes, a company that made significant changes in the way that people work and brought the quality and the ease of getting that quality up just as all the predecessors have done.

We’ve covered so much ground in this interview. Is there anything we haven’t discussed yet?

ME: I would just say that I started this company because I was a musician and passionate about music, and also I was passionate about technology. I cared and I care deeply about helping people to be creative. If I imagine what the best possible outcome of all of this is, is that more people will be creating art that they’re proud of. It’s that simple.

MC: I would just follow that up with…42.

— David Weiss

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