We caught up with Angelo Exarhakos, the CEO of Universal Distribution, which recently acquired Alliance Game Distributors (see "Under New Ownership"), from his vacation in Greece to get the latest on the transaction, what’s been happening since, and his plans for the future.  In Part 1, we talk about the acquisition process, the ownership transition, coming changes, and supplier and retailer relationships.  In Part 2, we talked about Universal's plans for comic distribution, its approach to that market, handling preorders, Diamond UK, and other categories.

ICv2:  Let's start at the beginning of the story.  How did you become aware that Diamond was selling assets?  Did you approach them or did they approach you?
Angelo Exarhakos: When I first found out about it, they weren't just selling assets.

We've been looking to expand into the U.S. for quite some time, and we've been looking at the different options available to us.  We were looking at potentially simply an organic expansion, renting an industrial space, hiring staff, versus an acquisition. We had been looking at different options for acquisition.  We were looking at several other distributors down there.

I was speaking to somebody that I consider very well connected in the industry when we were over in Essen at one of the shows.  He said, "Have you looked at Diamond‑Alliance?"  I said, "I had no idea that they were looking for any type of partner or sale."

He said, "I think you should give him a call," so I did.  At the time, we were looking at a share purchase; it was not going to be an asset purchase.  That's how it started.  That continued to a due diligence process.  During that diligence process, the bank pulled the plug and put them into a bankruptcy process.  That's when it turned into an asset sale.

Universal was the winner of the auction (see "Plans for the Auction") to acquire Alliance Game Distributors after a fairly chaotic process.  Can you tell us anything about how that process went down?
There's going to be some things that I obviously can't talk about; we are under an NDA.  There are a few things that I think I could speak to, which I'll be happy to do.  We went into the auction without knowing who the other bidders were going to be.  We arrived at the auction at 7:30 a.m. at the offices of Raymond James in New York City.

I thought there would be more bidders, but at the end of the day, there were just a few. The process was supposed to be that they were going to start with the largest asset and then auction off in that order to the smallest asset.

We were scheduled to start in the morning with Alliance as that was the biggest asset, then Diamond, and then everything else after that.  However, we were informed that morning that there had been a change of plans, which I can tell you we were not happy about.

We had all our plans ready and our structure ready on how we were going to approach this auction, and they told us that due to a bunch of reasons and other bidders, they were going to start the auction with auctioning the entire group off as one.

We did not go down prepared to purchase the entirety of the Diamond‑Alliance, and the reason is there were several parts of the entity that we were simply not interested in.  We don't want to be in the toy business, we don't want to be in the grading business.

Also, we had been looking at Diamond earlier and felt that, during our due diligence, perhaps pre‑bankruptcy, there was a deal to be made there for Diamond and Alliance, but once they pulled the trigger, we felt that Diamond's business had been too badly damaged to salvage in that type of a deal once the bankruptcy had moved ahead.

We felt Alliance, however, still had its core assets intact, so that deal made sense for us, and that's why we proceeded.  That certainly threw us for a loop.  We didn't really know what we would do.  There was a suggestion that we simply combine our bids with Ad Populum, who was interested in Diamond's business, specifically not Alliance's.

I want to make sure this is clear, because I've heard some things to the contrary: before that meeting I had never met Joel Weinshanker from Ad Populum. That was the first day I met him.  The only extent of our partnership was simply combining our bids to bid together so that essentially, they come to the total, and our bids would increase in the same proportion as they started.  That was the only extent of our partnership.  We don't have anything other than that to do with each other.

Joel owns some companies that we deal with, WizKids, etc., and we still do business with him, but in terms of any type of partnership, there's nothing there.  It was simply a combined bid so that we could actually place a bid on the entire thing against the other bidders that were there.

Starting broadly, since the closing, how has the transition to your ownership of Alliance gone?
It's been very smooth.  We did not change any staff, we didn't let anybody go.  In fact, we kept everybody at Alliance on.  We were very happy with the team over there, and we did take on a bunch of people, folks that were at Diamond.  We took on their entire finance and IT teams, as well as a few key staff that we felt would be an asset for us that have come over.

It's been an extremely smooth transition.  Those guys have done a phenomenal job at Alliance. They've been working under pretty difficult conditions, with what Diamond's gone through the last couple of years, and still have been able to run a very successful company in Alliance.

We feel that as we are able to make some key investments in their infrastructure, technology, and some other things over there that have not really received the type of investment over the last few years that they could have that we'll be able to really raise the level of experience for both our vendors and our customers.

Are you going to maintain the name as Alliance, or are you going to brand as Universal across all of North America?
We will probably rebrand as Universal, likely at some point early next year.  We're hoping that once we have our new ERP running, a new website running, a couple of the key things that will help represent our brand the way it's represented in Canada and that type of standard that we expect, that it will just make, simply, a lot of sense to rebrand at that point to Universal.

One of the issues in the auction was that Alliance was losing Wizards of the Coast as a supplier (see "Alliance Entertainment Sues Diamond, Again").  Are you able to continue to offer Wizards of the Coast products due to your relationship with WotC?
Well, our contract, our Canadian contract, is a North American contract.  So yes, our contract in Canada, through Universal, allows us to sell products in both the U.S. and to the Canadian territories, so there's no issue on our side.  We're fully covered with that contract to sell into the US, so Alliance Game Distributors is continuing, and will continue, to be a partner of Wizards of the Coast under the Universal umbrella.

To clarify for our readers, did you acquire Alliance's supplier liabilities as part of your purchase price?
Yes.  Like I've said a few times now, I would never be involved in any deal where vendors would be unpaid.  I do not have any interest in doing something like that.  We are in an extensive partnership with our vendors, so any acquisition under any conditions, whether it's through a bankruptcy or not, we were going to make sure that they were made whole.  That's what we've done.

That's both pre‑ and post‑petition liabilities?
That is correct.

What about your relationships with what would be Alliance's second and third largest suppliers, which are probably Pokémon and Bandai?
That's correct.  We have a great relationship with both companies.  Again, we have those relationships in Canada and we do have them in the US, and we will continue having them in both territories.

I'm happy to say that we have not lost any vendor through this process at all.  In fact, we're adding vendors through this process.  I hope that the fact that we did make everybody whole, whether it was pre‑petition or not, whether it was a legal responsibility or not, makes a statement to our vendors that we're in this for the long term and it is a partnership.  We need a partnership with both our vendors and our retailer partners, so this is really important to us.

Switching to the other side of the distribution business (you have two sets of clients to serve ‑‑ publishers and retailers), before the acquisition went through, we'd heard from retailers who told us that some had moved orders away from Alliance because they were nervous about the security of their supply, this potential disruption.  What's the current status of Alliance's relationships with retailers?
I think they're trying to get the message across that they can place their orders and their preorders for future products with confidence.  We've put out a few statements on the Alliance website and sent them directly to separate retailers that our relationships with people, companies like Wizards of the Coast and Pokémon and Bandai and etc., are all safe, they're secure, and in fact, they're becoming deeper and closer partners with us.  All of them will be present at Alliance's open house in September, so it's a great opportunity for retailers to come and speak directly to those vendors and be able to get the assurances they need so that they can place their orders with Alliance.

It's really important, and I do understand those retailers having to be 100 percent sure that they will get access to those products, because that's what they need to pay the bills.  I welcome them to reach out directly to anybody at Alliance or to us, or even directly to the vendor, to either Wizards of the Coast through the WPN program or Pokémon or Bandai directly to make sure that they will have access to those products.

You mentioned briefly a question we were going to ask, which is, are you going to continue the Alliance Open House?
We absolutely are going to continue to do the Alliance Open House.  We will have a few new elements there.  There will be some comic book content there, so we will have some publishers that will be joining us over there.  We'll also have some other companies coming out, probably from the sports card business, as well.

We intend to not just keep it going, but we will be investing a fair bit in expanding it and making it more welcoming to both retailers, and especially the vendors.  We generally, at the Universal level, don't charge vendors to attend these shows.  We think this is a very good marketing expense for us and a good investment, to be able to bring our vendors close to our retail partners, so you're going to see us invest and expand that show.

Are you planning any changes to Alliance's warehouses, or in general, their logistics network or operations?
Yes, with new technology, we're hoping that it's going to be a little bit more efficient.  Although I will say, what I was most impressed with at Alliance was how organized and well‑trained their staff was in those locations.  That was probably the element of Alliance that I thought was best.

We certainly will bring some new technology in there, and we'll probably expand some space, as is needed.  We're actually looking at doing that now. We will be bringing in comics, obviously, as you know, so they'll need some extra space and some new tech for that, as well.  We probably will be expanding some of their 3PL services, as well, for some publishers that require that, so, yes, you will see that expanding, as well.

Click here to go to Part 2.