Dream Machine FX, a global collective of visual effects houses, has acquired Important Looking Pirates, the VFX studio that worked on blockbuster series such as Stranger Things, Shogun and Fallout , a continuation of its string of purchases in the industry.
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The studio founded in Stockholm, Important Looking Pirates (ILP), is known for creating realistic-looking water simulation and underwater scenes, as well as complex creatures and lifelike environments. It helped make effects for a variety of blockbuster and critically-acclaimed titles, including Westworld , The Last of Us and several titles in the Star Wars franchise.
With the merger, ILP joins Dream Machine’s VFX stable that includes FIN Design + Effects, Mavericks VFX and ZERO VFX. The partnership, enabled by Arenova Capital, marks the group’s fourth VFX acquisition and its entry into the European market, with its combined footprint stretching across three continents and six countries.
The three years starting in 2020 saw a boom in mergers and acquisitions across animation and VFX, with nearly 50 deals headlined by Cinesite’s four purchases in 2022 alone and Sony bringing Pixomondo under its umbrella. During this time, Hollywood giants looked to deals to bring animation and VFX in-house, as seen with Netflix acquiring Animal Logic following its purchase of Scanline less than a year before. Institutional Investors, such as Aleph Capital, Crewview Partners and Key Capitals, were similarly bullish on VFX.
Amid industry turmoil and contraction over the past two years, combined with supply finally approaching VFX demand, however, the deals dried up.
David Li, Arenova Capital managing partner and Dream Machine chairman, says he sees opportunity in the devaluation of VFX houses and in scaling operations as industry behemoths raise prices and ad monetization kicks in.
“Our M&A strategy has been different — we’re curating the best and brightest VFX houses that share our values and offer great value propositions to our clients through different price points, rebate levels, specialties, geographies and capabilities,” Li says.
There’s also the revival of dormant franchises, like Harry Potter, Lord of the Rings and the theatrical version of the Star Wars saga, that’ll lean heavily on VFX, he adds.
Arenova has been among the largest serial acquirers since 2023, when Zero and Mavericks announced the formation of a VFX group through a merger enabled by the private equity firm. Both of the companies continued to operate under their existing brands. Under the deal, ILP is set to similarly retain creative autonomy.
In 2023, ILP, which has offices in Stockholm, Hamburg and London, grew 15 percent and “had its best year ever,” says co-founder Niklas Jacobson.
Financial terms of the deal weren’t disclosed.
“We’ve long held that we would only enter into a strategic combination if we found a partner who shared our values and our commitment to talent and artistry – we strongly believe that we have found that partner in Dream Machine,” said ILP co-founders Jacobson and Yafei Wu, both of whom will become shareholders in Dream Machine. Under the agreement, Jacobsen will join the company’s board, while Wu will become a senior advisor.
ILP chief executive Eva Mautino will continue in her position and also become managing partner of the group. “The partnership with Dream Machine FX amplifies our strengths while allowing us to keep our creative independence,” Mautino said in a statement. “Our common vision for the future creates a fantastic opportunity to invest further in our team and expand our capabilities.
Dream Machine is set to make another acquisition, which has yet to be announced, in the coming months.
Li and Jacobsen spoke with The Hollywood Reporter in an interview that touches on the impact of generative artificial intelligence in VFX, tax incentives and dealmaking, among other things:
What is the vision for Dream Machine and how does ILP fit in?
Li : The industry has long been defined by two ends of the spectrum: really big companies that can perform at scale, but are less personal, and maybe a little less consistent of an experience for clients, and on the other end, smaller companies – boutiques if you will – that are the inverse of that, with usually one, maybe two locations, inconsistent capacity availability and without the scale or financial strength of larger companies.
Dream Machine is a direct response to this and our mission is precisely to be the best of both worlds. At its core, we are a house of boutiques – a visual effects version of Bergdorf Goodman or Harrods – and we want to be a constellation of great brands that mean different things to different clients, but ultimately all stand for quality and artistry, and that clients want to return to time and time again.
Jacobson : Clients usually come to ILP when they are faced with a really difficult VFX challenge, and ILP has grown throughout the years by supporting and delivering solutions time and again to meet those challenges. That is the core of what ILP is and that will continue to be our brand under Dream Machine.
This industry is built on collaboration and every single project is brought to life by a collective of VFX houses. Because we’re typically working on the hardest VFX sequences on the highest profile Hollywood projects, there are almost always 10 or more vendors working alongside us. Yet at the same time, that collaboration is never perfectly frictionless. There are pipeline constraints, there are reservations about sharing work fully with competitors. The vision of working with two or more Dream Machine companies is that those reservations don’t exist because it’s all one under one roof, and secondly, those tech constraints will be removed in time as we invest in the bridges in between different Dream Machine studios.
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In the last 18 months, Hollywood has been in a bit of turmoil – a dual strike, pullback in general content spending, a complete reexamination of parts of the business model and the specter of AI on the horizon. Yet at the same time, Dream Machine has invested heavily, with ILP marking its fourth acquisition. Why now?
Li: Actually ILP is one of five acquisitions, there’s one that we haven’t announced yet but will be announced in a few weeks.
To answer your question about the industry, I think the strikes really gave the studios a chance to take a breath and reexamine what was working and not working. That reset has resulted in short-term lowered content spending and I think people are maybe over-extrapolating those trendlines.
I also think people are maybe proclaiming the “death of streaming” a little too prematurely. Ultimately Netflix has proven that being a streaming service at scale is an attractive business. Direct to consumer, highly recurring, pricing power, globally scalable, free cash flow positive and strong barriers to entry. As the streaming market raises prices and ad monetization kicks in, that scale position is going to look better and better.
2021 and 2022 were very active years for VFX M&A; however, there has been little M&A in 2023 and 2024 outside of the acquisitions that Dream Machine has made, what do you see that others don’t?
Jacobson : We got a lot of calls in 2021 and 2022 but never really considered selling because the timing wasn’t right and the callers weren’t right. We didn’t time this deal because of the volatility in the industry. ILP grew 15% last year and had its best year ever. We did this deal because we see tremendous opportunity in the VFX industry in the next 5, 10 and 15 years and we felt that the best way for ILP to achieve the maximum it can achieve is as part of this strong collective of other great VFX houses.
Li : Our M&A strategy is very different – we’re curating the best and brightest VFX houses that share our values and offer great value propositions to our clients through different price points, rebate levels, specialties, geographies and capabilities. The M&A in 2021/2022 was driven by the shortage of VFX capacity vs. the massive backlog of demand from COVID unwinding. As a result, a lot of that M&A felt like a bodybuilder trying to add bulk by eating a bunch of cheeseburgers and milkshakes.
In my experience, the best VFX companies don’t want to be gobbled up and conscripted into the factory floor, so the prospect of joining a platform like Dream Machine has really resonated. I would also add that every company we’ve acquired has fared better than the overall industry through the strike. That’s not an accident – when you are known for really great quality and are trusted to deliver time and time again, clients will find a way to spend money with you even when times are slow.
AI’s impact on the industry has dominated the narrative, but it appears there are still technological, scaling, and legal constraints to adopting the technology. Thoughts?
Jacobson : I think AI will play a crucial role in the future of VFX, but I am not sure it will play out the way some people fear. I believe that AI and generative AI will be an immensely valuable tool in the hands of human artists that will enhance productivity and creativity. Tedious, repetitive, boring or brute force tasks will be replaced and artists will be able to do a more diverse and creative set of tasks.
I come from a TV commercials background where artists were generalists and you had to do a wide range of tasks across multiple disciplines. You did your own modeling, FX, lighting and comp, etc. As a result, I have always been skeptical of the department mentality that the larger companies have, which is essentially a big assembly line – that to me is not very creative. It might be easier to manage, but it seems way less fun and you cap the expectations and growth of individuals. Proficiency in the core disciplines in VFX can be learned in 5 years so if you’re in a department-style organization, there’s a step function drop in your learning unless you have the self-confidence and motivation to move outside of your comfort zone. I hope and believe that AI will bring back some of the generalist mentality and allow artists to take more ownership and breadth of their work and be more creative.
Li : I agree that in the long-run, general purpose AI will have a profound impact on our lives and the VFX industry; however, the current generative AI products are unlikely to be the disintermediative force that many fear. Echoing Niklas, I believe AI will be a better paintbrush, not a better painter.
First, as you mentioned, there are real structural problems with generative AI. Copyright and fair use are huge issues and creators need to be compensated for being included in the training data that is powering these tools today. Scaling is another issue, the underpinning math of deep learning suggests that linear improvements in output require exponential increases in input. That’s why you see OpenAI looking at investing in nuclear power plants, because they know that to keep introducing new models, they’re going to need exponentially greater amounts of compute, electricity and capital.
Secondly, the quality simply isn’t there nor do I see it getting there without a lot of time and a lot of capital. To use an analogy – genAI for video right now is a microwave – it’s really good at quickly producing something that resembles a meal. We are in the Michelin-starred restaurant business. Even as these products get better, it’s going to be a very long time before our market is impacted and people are severely underestimating the resource cost of going from 60 seconds of output to 10 minutes or going from 1080 to 8K.
Sweden, which has no production tax incentives, is a counterintuitive place to start a VFX company. Has this been a barrier to obtaining work from studios, which have placed a greater emphasis on cost-cutting and tax credits in recent years?
Jacobson : We founded ILP in Stockholm to be able to be close to family and friends; however, our vision was always to one day compete with the established international vendors. The fact that there were no tax incentives in Sweden was simply another obstacle to overcome. Rather than seeing this as an insurmountable thing, our competitive spirit simply said ‘ok, we need to be 30% better than our competitors in order to stay relevant.’ We were able to do that by recruiting the most passionate artists, by investing in a really strong culture and making sure our technology allowed us to be really efficient.
Personally, I like being an underdog, it requires you to stay on your toes, and to reinvent and push boundaries in the way you do things. I still think we are an underdog today and we’re still trying to deliver better and better outcomes for our clients on every single project.
Li : Ultimately, our philosophy at Dream Machine is ‘how can we best serve our clients?’ While that does often involve offering a tax rebate, in almost all situations, the rebate is only one of many considerations. We’ve found that the quality of the talent is far more important than the rebate alone and unlike many of the big VFX houses who purely chase the rebate, we want to be where the best people are.
This interview has been edited for length and clarity.
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