In a move that will send shockwaves through what’s left of the U.S. physical-music sector, Alliance Entertainment is moving to acquire Anderson Merchandisers’ music rack-jobbing business, which supplies Walmart and Best Buy, according to sources.
The deal would make the company the largest physical wholesaler in the U.S. — and, with Target, one of the two biggest physical music accounts.
While the deal has yet to be signed, sources say negotiations are in the advanced stage and earlier suitors might have already left the playing field. If Alliance can complete the deal, it will give the music and video wholesaler slightly above $1 billion in revenue, of which music will comprise at least two-thirds, Billboard estimates. Word about the deal heated up as the music industry heads to Nashville for the Music Biz convention, held May 16-18.
In addition to rack-jobbing Walmart and Best Buy, Anderson Merchandisers also owns the U.S. distribution pipeline that services DADC, the Sony Corp.-owned CD and DVD manufacturer that serves its own home-entertainment, music, video and videogame business, while also providing those services to Universal Music Group, among other customers. Anderson, which entered the music rack-jobbing business in 1994 when it acquired Western Merchandisers, bought the DADC pipeline for the U.S. in September 2012.
According to sources, the music component of the DACD distribution pipeline may be a part of the deal. The distribution pipeline, which serves as a funnel for getting music from the plant to stores, services Sony, UMG and some independent labels. In contrast, the rack-jobbing operation determines what music goes into each store from all music labels, including how many copies of each title will be shipped to which store, and which titles each store will stock.
Prior to this pending deal, Alliance Entertainment supplied music to Barnes & Noble, Kmart and Books-A-Million and already shipped music and DVD product to almost 3,000 unique retailers with 14,500 location before this latest potential acquisition. In addition, Alliance Entertainment is considered the largest U.S. wholesaler/back-end fulfillment house to thousands of online CD and DVD stores.
Sources suggest that Alliance Entertainment has about $700 million in revenue while Anderson’s AnConnect music business has about $350 million in revenue.
In 2013, Alliance Entertainment was acquired by Super D, a California-based wholesaler owned by Bruce Ogilvie and Jeff Walker. At the time, Billboard noted that Super D had revenues of almost $200 million, while Alliance Entertainment had revenues of about $725 million, with CDs comprising about half of that and DVDs, the other half. Anderson, at that time, was considered twice as large as that. Since then, with the decline of the CD and DVD, sources suggest that Super D, which now operates under the name Alliance Entertainment, has revenues of nearly $700 million.
On the other hand, since last year, Anderson Merchandising has been divesting its entertainment software distribution business. In July of 2015, it sold the ANconnect video business and its Anderson Digital joint venture, a global digital distributes of movies and TV shows, to Alchemy, the independent film and television distribution entity.
Last week, Anderson Merchandisers announced it was selling its ANconnect book distribution business to Readerlink Distribution Services and as part of that deal also sold its distribution centers in Winder, Ga., and Denton, Texas.
While Anderson Merchandisers appears to be abandoning the entertainment software distribution business, it so far appears to be retaining its in-store marketing and merchandising operation. That operations insures that music and many other products beyond entertainment software shipped to the store gets on the shelves of merchants like Walmart and Best Buy and many other retailers too.
In its last acquisition, Super D shut down its own warehousing operation to use the Alliance Entertainment state-of-the-art distribution center in Shepherdsville, Ky. But sources say they don’t know what the shipping plans are, if Alliance completes the current proposed deal.
The potential Alliance Entertainment Anderson deal is not the only deal doing on in the music entertainment software sector. In another industry move last month, Baker & Taylor, another large entertainment software distributor, was sold by the private equity firm Castle Harlan to the Follett Corp., a provider of print and digital books and other multimedia to libraries, institutions and retailers. While Baker & Taylor was one of the largest book wholesalers, it is also one of the main music wholesalers in the U.S., even if it was a distant third — make that distant second if this deal happens — ANconnect (Anderson Merchandiser) and Alliance.
While terms of the deal are not known, the Super D owners will likely use a slice of debt to pay for the acquisition, a strategy it employed when it acquired Alliance Entertainment. In making the latest deal, not only are Alliance principals betting that physical music and video product has a longer shelf life than suspected, with Alliance now positioned as the dominant wholesaler; by also obtaining the DADC distribution pipeline, they are making a play to position Alliance as the backroom/distribution pipeline for the major labels as well.
With physical music sales making up almost 29 percent of the industry’s $7 billion in U.S. sales last year, Ogilvie and Walker appear to be betting that they can ride the slow decline of the CD to profitability and a big payday.
Ogilvie is a long-time music distribution wholesaler who sold his Abbey Road One-Stop to Alliance Entertainment in 1994 for about $35 million. After his non-compete clause with Alliance expired, he became a partner in Walker’s Super D, and together the two had grown the business into the third largest music wholesaler by the time it acquired Alliance.
Anderson Merchandisers and Alliance didn’t immediately respond to a request for comment.