What are the plans and thinking behind Alliance Entertainment’s acquisition of Diamond Comics? We already have some clues: Alliance’s chairman Bruce Ogilvie appeared on the Byond Wednesdays “Industry of Comics” podcast to talk to retailers Jesse James, Dennis Barger and Bryan McClay. I know that sentence just chilled the hearts of some, but Barger was able to use some Phone-fu to reach Ogilvie, who stopped by for an hour long chat. He proved personable and knowledgeable, and open to learning about the intricacies of the comics business, even though it wasn’t the point of the purchase.
One of the key points: he was asked where the sale price ranked between $40-50 million and he said it was closer to $50 million.
Listening to the conversation and taking some notes, here’s more of what he said (and please note there is a lot more in the one hour conversation, so please check out the podcast for more information – and in case I misinterpreted something.)
Ogilvie talked about his history negotiating change in the music industry (which makes comics look like child’s play) including all the changes to physical media and so on. He mentioned that taking Alliance public was a huge undertaking, which slowed their acquisition strategy for a while. However, “We had a five year plan and this is year one of our five year plan. We were $1.4 billion at our peak. Last year we were looking at opportunities for lots of things. I was at an investor conference and talking to someone from the [comics] industry and they tipped me off [about Diamond.] I knew of Diamond but didn’t know much about it. People who work with me know all about it. I heard they were possibly going into bankruptcy.”
Ogilvie says they were trying to find a way to buy Diamond outright, instead of letting it go into bankruptcy. “Unsecured creditors don’t get a lot of money. We felt it would be better for the trade if we could just buy it, but we couldn’t control the offer. It was being run by Raymond James and that train had left the station. We had to be patient and wait until they filed for bankruptcy. And that started the clock.”
Once Diamond went bankrupt and Universal had a stalking horse bid, Ogilvie connected with Universal CEO Angelo Exarhakos. “I didn’t know Angelo from Adam. I talked to him one day. He was very nice and talking and an open book. I heard all his opinions about everything. I didn’t say anything. I never talked to him again.”
With access to all the financial information and under NDA under the bankruptcy proceeding, “We wanted to be the stalking horse but we couldn’t get comfortable with the number,” said Ogilvie. “In hindsight we should have just bellied up to the bar and become the stalking horse but it probably cost an extra $1.3 million. You get overbid protection if the court certifies the auction, that’s how it will turn out for Universal.”
Asked about why they wanted Diamond, he says “It’s a natural extension of who we are. We sell Funkos, Hasbro, Legos, Mattel. It’s a very small part of our business – $50 million of our $1.1 billion. But it’s a big leap frog into an area there. It’s either go big or go home. It’s the same amount of work buying a $50 million company is a $300 million company so you might as well put your revenue in a $300 million company. Whenever we buy a company it opens new relationships with new suppliers. It’s also diversify or die. We want to take profits from the good times and invest in other areas because we want to be around for a long time. Ingram Entertainment didn’t diversify and they had to shut it down. If I talk to investors it’s ‘oh who buys a CD?’ Now we can make a statement, this is collectibles. You can’t download it and you can’t stream it.”
He also mentioned the synergies of having all the different products under one umbrella. “That makes us a supplier that large chain retailers want to do business with. We can be their entertainment specialist and they don’t need any expertise.”
In perhaps the most anxiously viewed topic, Ogilvie was asked about small indie publishers and how Alliance might handle the comics business.
“I haven’t spoken with the [Diamond] team yet because we’re not allowed to but I want to hear what they say and what we can do to fix this business. I just know how it is currently being run is not working. From everything I’ve read and been hearing, there’s just not enough volume for the labor involved. We don’t like to sell $5 cds and dvds. We can’t make any money on it. We want to sell $20 products. That’s the challenge because the labor cost and the freight cost just sucks all the profit out of it. We have a 95 cents rule – if we can’t make 95 cents moving through our warehouse, we have to make a minimum because that’s what it costs to move things through.”
Asked about other outlets to sell comics (Ollies was mentioned) he said “We would be open to selling anywhere. We’re happy to sell our product anywhere in the world as long as the check clears.”
He was also asked about the $33 million in accounts receivable mentioned in the bankruptcy filings – that’s the money owed to Diamond from comics shops. Although keeping inventory is a complex matter, “We want to collect on those receivables. It’s not forgiveness all of a sudden. You would be negotiating from day one.”
One aspect of the sale is mixing products and updating Diamond procedures, and Ogilvie gave an answer that might echo some of his research into Diamond’s history. “We’re not a bank, we’re a distributor. Based upon previous history and experience we have, we want to help [stores] because we want them to sell more product.”
Other matters:
- Alliance has one ordering system for all products.
- Asked about Previews, Diamond’s immense iconic catalog, “We need to understand a procedure first. It’s not like it’s our way or the highway. We have to figure out what works.”
- On working with retailers and Diamond’s past way of doing business, Ogilvie said one of his employees went into a comics shop and heard a lot of complaints about Diamond’s procedures, “I was getting updated today by that person today was telling me everything they were saying so I’m sure we we should be trying to understand and learn all that.”
- On CGA, Diamond’s collectibles grading service: “It’s pretty small in the overall scope of the operation. We didn’t visit or check it out. We have a learning curve on that. Someone was telling me that CGA kind of screwed things up from a grading perspective.”
- On Free Comics Book Day (which was not mentioned as part of the acquisition.) Ogilvie didn’t seem to know much, and the panelists had to explain how it worked. “I guess all the publishers provide the free comic books? There’s no Free Record Day. There’s Record Store Day. Diamond was not a very profitable business. That’s why it went into bankruptcy. If I don’t make it profitable, I’m going to have a very grumpy bank and employees.”
- On the bidding process: “There were two bidders who wanted the whole company. Universal only wanted Alliance, and there was someone who just wanted Diamond so they partnered up [This was Ad Populum, owner of Neco, Rubies, WizKids and several other companies.] Everyone was close in the beginning, but it separated and one had to drop out and we came the leader in the end.”
- On getting comics into music stores and vinyl into comics shops: “Everyone stays in their lane where they feel comfortable with, but we will offer things like that and they are free to order what they want. If you’re a record store you’re always being a record store. We’ll certainly offer it and promote it there.”
- On selling more physical products that can be collectible: “We’re leaning in to be stronger in the collectible space. We’re known as one and done but there is value in hanging on to something and selling it later on. Seeing if it would lead to higher value down the road.”
- On Overstreet, totally unmentioned in all of the filings, Ogilvie said he was unaware of it. “We had one meeting with Diamond and it was like pulling teeth and there was a lot of ‘We can’t talk about that.’” He mentioned that he had never met the Geppi family. “We don’t have the ability to talk to anybody at Diamond. After the court approves it, we will talk to their own leaders team. I’m a big believer in employee owned. I’ve made a lot of trips to Kentucky [site of Alliance’s warehouse] over the years.
- On retaining Diamond staff: “In any company we are required to have the people who have relationships with vendors and customers. If we lose them, we really fall behind. Now obviously over time we kind of learn who the good ones are and the bad ones. We’re not going to go in with a chainsaw from day one, that’s not our DNA. I wouldn’t even know how to do that.”
- On Diamond’s SDCC booth: Ogilvie saw it in some of the other asset purchase agreements and was told it was a big deal so they made sure it was included. He said he doesn’t plan to attend SDCC. [IMHO, we’ll see!] The retailers asked him about con exclusives, which he was unaware of, and he seemed intrigued by the idea.
After listening to Ogilvie discuss the purchase, McClay kind of said what most of this really came down to. “The comics thing wasn’t a big part of this at all, it seems.”
“No, it wasn’t. It wasn’t 100% of it,” Ogilvie replied.
My main takeaway from this is that Ogilvie is a good businessman who said a lot of the right things. But as a good businessman, it is clear that Diamond’s comic business was a shadow of its former self, and the problem of how to distribute a patchwork quilt of $5 products from companies that range from one person in a garage to studio IP farms is not going to be magically solved.
That said, Alliance is very well funded, has a huge infrastructure and when all their outlets – ranging from Walmart to small record stores – are integrated you could see some interesting new synergies being explored.
If nothing else, publishers that still have a deal with Diamond (which is most of them aside from Marvel, DC, and Image) might find that, under the new owners, going back to Diamond/Alliance as a sub-distributor might be beneficial when all the dust clears.
Also, as I kept warning people: this ended up being about the toys and games. When they lost their comics business, Diamond shifted to toys and games, and that turned out to be a valuable business after all.
PS: to any Alliance Entertainment personnel reading this, please take Dennis Barger with a big grain of salt. He is a character and he’s our character, but he does not speak for even a tiny minority of comics shop owners.
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