Alliance Entertainment, the giant music, video and gaming wholesaler, will be going public and trade on the New York Stock exchange, the company announced Thursday (June 23). The public listing will be done through a reverse merger with Adara Acquisition Corp., a special purpose acquisition company (SPAC).
The deal is subject to the approval of the shareholders of Adara Acquisition Corp., which trades on NYSE under the symbol ADARA. If the deal closes — as expected in the fall — Alliance Entertainment will trade under the symbol AENT. The deal has assigned Alliance Entertainment a pre-deal valuation of $480 million.
Alliance Entertainment serves as a one-stop for all titles to brick-and-mortar and online retailers. In the first nine-months of its fiscal year ended March 31, the company has racked up $1.153 billion in sales, of which music accounts for almost $370 million (32% of sales). Of those music sales, vinyl compromised almost $250 million and CDs nearly $120 million.
Otherwise, gaming accounted for $476 million (41.3%) of Alliance Entertainment’s sales over the period, video $219 million (19%), and other $81 million (7.2%).
The company also fields an independent distribution arm, Amped, that carries 150 labels exclusively for physical product; and that business is generating about $70 million annually.
If Alliance Entertainment continues to produce sales at its current nine-month level, the company will have almost $500 million in music sales by the end of its fiscal year.
If the deal is completed, Alliance Entertainment will be the recipient of the SPAC trust, which after $8 million in transaction costs, is expected to be about $109 million. A that point, the Adara Acquisition Corp. shareholders will own 22% of the company with Alliance Entertainment principles, chairman Bruce Ogilvie and CEO Jeff Walker, holding the remaining 78%. The Alliance Entertainment principles, who will continue to run the company, will not be able to sell any shares until the expiration of a six-month lock-up period from the date of closing.
Looking at the company financials on a trailing 12-month basis ended March 31, 2022, Alliance Entertainment has generated $76 million in adjusted earnings before interest, taxes and depreciation (EBITDA) on revenue of $1.465 billion, which means its going public at a 6.2 EBITDA multiple, Ogilvie said during a conference call with investors on Thursday.
The company, which has grown over the years through acquisitions and organically, intends to use the cash from the deal to fuel further acquisitions, the principals said in the call.
“We are raising this capital to grow exponentially through acquisitions,” Walker said. “We know how to get financing, how to target acquisitions and then close the deal; how to integrate the merged companies; and then how to expand sales by cross-selling. We will continue to expand into new entertainment products and will increase our market share.”
Ogilvie added, “This deal is not about estate planning; we want to take this company to the next level. We are rolling over 100% of our equity so we have lots of skin in the game.”
The wholesale operation, initially named Super D, has grown from $18 million in 2001 to $194 million in revenue in 2013 — when it became the minnow that swallowed the whale by buying Alliance Entertainment, which at the time had $725 million in revenue. Since that acquisition nine years ago, Ogilvie and Walker have grown the company by more than 50% through a few other acquisitions like Anderson Merchandisers, game distributors Mecca and COKeM, and a Sony company called Distribution Solutions. “Jeff and I did this with no outside capital,” Ogilvie said. “Just imagine what we can do with access to capital.”
Currently, Alliance Entertainment counts Amazon, Walmart, Best Buy, Costco, Target, Barnes & Noble and eBay among the merchants it supplies, reaching a total of 35,000 stores. Beyond supplying product to those retail stores, in many instances Alliance Entertainment also supplies inventory and fulfillment services for their online stores. Overall e-commerce accounts for 40% of Alliance Entertainment’s revenue, Walker said.
Alliance Entertainment inventory covers 485,000 SKUs (stock-keeping units) and the company employs 1,200 staffers its two major fulfillment centers, three satellite centers and five office locations.
Looking at the prior year ending June 30, 2021, Alliance Entertainment produced an operating profit of $68.6 million, on revenue of $1.32 billion, while net income came in at $34.8 million.
As of March 31, 2022, the company’s balance sheet showed $1.5 million in cash, $117 million in accounts receivable, $250 million in inventory, while liabilities include $223 million in accounts payable, and a draw down of $134 million from the company’s $175 million revolving credit facility.
Adara Acquisition Corp. — which raised about $117 million when it went public and now carries a market capitalization of $142.3 million according to Yahoo Finance! — shares traded up 2 cents on the news and closed Thursday at $9.90.