Alliance Entertainment’s plan to go public through a reverse merger with Adara Acquisition Corp. — a special-purpose acquisition company (SPAC) — got sideswiped by the collapse of the SPAC market.
While the deal was finalized Monday (Feb. 13) and Alliance Entertainment is now a publicly traded company, it leaves the media wholesaler without the initial intended benefit of reaping tens of millions of dollars in new funding to continue making acquisitions to fuel growth and to modernize its warehouse equipment.
That’s because only Adara shareholders owning 167,00 shares (out of 10 million total) have chosen to participate as stockholders in the merged entity. As a result, Alliance Entertainment only received about $1.67 million, which likely isn’t enough to cover the legal and investment banking fees for the transaction.
The company’s light stock float also leaves it ineligible to be listed by the New York Stock Exchange as originally planned, so now Alliance is being carried on the OTC pink-sheet marketplace.
Alliance Entertainment — which carried a $480 million valuation going into the deal — remains a formidable powerhouse as a one-stop rack jobber and independent distributor and overall entertainment software wholesaler, however. While the company brought in $28.62 million in net income on revenue of $1.42 billion for its fiscal year ended June 30, 2022, it lost $8.34 million on sales of $238.7 million for the three-month period spanning from July to September.
Alliance Entertainment announced its plans to go public via a SPAC reverse merger in June 2022. At that point, investor excitement over the SPAC route to public listings had already cooled from its high in 2021, but by the end of the year, it had totally tanked. And even if Alliance Entertainment didn’t raise as much money as it had hoped by going public, there are other benefits. As a publicly traded company with audited financial statements that need to surpass the scrutiny of the Securities and Exchange Commission, it should now be able access capital and options to raise funding through debt beyond its previous reliance on bank loans.
“We believe that today’s milestone combined with our strong revenue growth, expanding customer base and product offering, and several successful acquisitions, will help accelerate our future expansion initiatives,” said Alliance Entertainment CEO Jeff Walker in a statement. “Alliance Entertainment today is well positioned to continue to capitalize on shifts towards eCommerce and Omni-Channel strategies, especially with retailers and manufacturers’ vastly increased reliance on their DTC (Direct to Consumer) fulfillment and distribution partners. We are at an inflection point that now positions us to execute a multi-prong growth strategy that we expect will deliver a double-digit revenue growth rate with strong cash generation to the bottom line.”
Alliance Entertainment serves as a physical music, movies and video games wholesaler to retailers including Amazon, Best Buy, Target, Kohls and Gamestop, as well as independent stores; it’s also a rack jobber to chains like Walmart and Barnes and Noble. It additionally provides e-commerce fulfillment to many of those retailers and runs its own online websites including Deepdiscount.com, Popmarket.com, Importcds.com, Critic’s Choice Video, Collectors Choice Music and Movies Unlimited, while fielding its own brands on eBay, Amazon Marketplace and Discogs as well. In total, nearly $540 million, or 38% of Alliance’s revenue, is generated through the above online sales.
In total, Alliance says it stocks over 485,000 unique entertainment products from Microsoft, Nintendo, Activision, Electronic Arts, Sega, Funko, Disney, Warner Home Video, Universal Video, Sony Pictures, Fox, Lionsgate, Paramount, Warner Music, Sony Music, Universal Music, Mattel, Lego, Hasbro, Arcade1Up and another roughly 500 entertainment product manufacturers. Within that, the company also fields independent distribution companies like music distributor AMPED, video distributor Solutions and video game distributor Cokem that exclusively carry over 57,000 vinyl, CD, DVD and video games titles combined.
“This business combination [with Adara] will further enable our significant focus on a strategic roll-up strategy of acquiring and integrating competitors and complementary businesses which we believe will drive an accelerated competitive position and value creation,” said Alliance Entertainment chairman Bruce Ogilvie in a statement. Being a publicly traded company will allow for further investment, he added, in automating facilities and upgrading proprietary software, which he said makes management “confident we can grow revenue and expand margins.”
Ogilvie continued, “We will also continue to expand into new consumer product segments, growing our product offering and providing more to our existing customer base while attracting new customers in the process.”
Walker and Ogilvie retain nearly 95% ownership in Alliance Entertainment and their shares are subject to an extended lock-up period.