History
The company's history began in a retail music store founded in 1990 by Jeff Walker and David Hurwitz, which began wholesaling CDs a few years later; this led to the founding of music wholesaler Super D in 1995. In 2001, Walker and Hurwitz sold a third of the company to Bruce Ogilvie, who had previously built and sold a music distributor to Alliance Entertainment. Between 2001 and 2013, the pair grew sales of Super D from $18 million to $194 million in annual sales. Super D acquired Alliance Entertainment, its largest competitor, in 2013 and merged the companies. At that point Walker became CEO of the company, and Ogilvie became Executive Chairman.
Since the acquisition, Alliance Entertainment under its new management has continued to make acquisitions (Walker and Ogilvie have made over a dozen acquisitions in the past 20 years) and had annual sales of around $1.1 billion in its last fiscal year ended June 30, 2024.
The company was privately held until 2023, when it merged with a publicly listed SPAC (Special Purpose Acquisition Corporation) and began trading on the NASDAQ.
Operations
Alliance Entertainment has a number of lines of business, including:
- Distribution of entertainment, music, and video game products, including merch, with around 325,000 SKUs in stock.
- Exclusive distribution relationships for video and music brands
- Licenses video content for the production and sale of DVDs
- Consumer e-commerce fulfillment via drop-shipping for its customers
- Vendor managed inventory for retailers
Alliance ships to over 35,000 storefronts worldwide and is an omni-channel supplier for Walmart, Amazon, Best Buy, Costco, Target, Kohl's, BJ’s, Meijer, and Barnes & Noble.
In terms of independent stores, Alliance Entertainment currently sells to over 2,500 independent retailers, while Diamond and Alliance together service around 5,000, so with limited overlap, the acquisition can roughly triple the number of independent retailers the company services.
Alliance Entertainment's logistics are several generations beyond Diamond and Alliance's operations, with automated warehouse and picking operations. Over the past couple of years, the company has installed the AutoStore automated storage and retrieval system, and the OpEx Sure Sort X sort system to streamline fulfillment at its Shepherdsville, Kentucky warehouse (see videos below showcasing these systems).
Financials
Alliance Entertainment reported sales of $393.7 million in its fiscal Q2 ended December 31, 2024, and net income of $7.1 million.
In the holiday quarter, vinyl sales were up 12%, from $97 million to $109 million; CD sales were up 2% from $38 million to $39 million; physical movie sales were up 23%, from $70 million to $86 million; video gaming product sales were down 27%, from $192 million to $140 million; and consumer products sales (including merch) were down 25% from $16 million to $12 million.
Management talked about the company's “capital-light” strategy in its most recent conference call, and it appears to be continuing that strategy with this new acquisition, which it is financing with debt rather than by issuing new equity.
Its balance sheet shows about $67 million owed on its $120 million revolving credit facility; trade and other liabilities bring its total liabilities to $306.1 million, on equity of $95.6 million. The revolver, with White Oak Commercial Finance LLC, is an asset-based line with fairly high interest rates, which were at 9.7% at the end of 2024. The draw on the revolver was down from $101 million on December 31, 2023; the reduction was accomplished by reducing inventory and receivables.
What's Next
With the closing of the transaction scheduled for April 10, there will be no time for changes to operations before the acquisition; the goal will presumably be to continue operations as before until changes can be made.
The Diamond Comic Distributors companies had sales of $326 million in calendar 2024, down from $345 million in 2023. There's definitely been substantial attrition of sales since then, especially on the comic side, where Diamond lost its share of Image Comics sales, is losing its distribution rights to BOOM! Studios titles (which it can continue to sub-distribute), and has seen numerous smaller publishers move to Lunar Distribution, on either an exclusive or non-exclusive basis. Retailers have also been shifting purchases on competitive lines to other distributors.
There's also the question of whether Diamond’s unsecured creditors will receive some or all of the money they're owed, and how that will impact their willingness to deal with Alliance Entertainment going forward. Alliance may also choose not to handle all of the lines of business currently fielded by Diamond Comic Distributors and Alliance Game Distributors.
Alliance Entertainment was quite conservative in its projection of sales from the acquisition, predicting that it would add "over $200 million" to its sales in 2026, or about two-thirds of the companies' 2024 sales.
The good news is that Alliance Entertainment has an experienced acquisition team that has integrated the operations of numerous companies over the past two decades.
Alliance Executive Chairman Ogilvie spoke of the importance of the companies’ employees, customers, and suppliers in a statement accompanying the announcement. "We're incredibly honored to welcome the talented teams from Diamond Comic Distributors, Alliance Game Distributors, and Collectible Grading Authority to the Alliance Entertainment family," he said. "These are passionate professionals who have built deep relationships across the fandom, hobby, and collectibles communities. We look forward to supporting them, learning from them, and investing in their success. To the suppliers, creators, and publishing partners that make this ecosystem so dynamic, we're excited to collaborate and build lasting value together. And to the customers who rely on these brands every day, we remain committed to delivering the excellent service and reliability you expect, and taking it even further."
We look forward to learning more, and hope for the best outcomes for Diamond's employees, suppliers, and customers.