Collectors Universe: A $700 Million Company
A superstar trio of investors purchased collectibles grading company Collectors Universe for $700 million yesterday, but what's their plan?
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Friends,
Entrepreneur and sports card collector Nat Turner is teaming up with D1 Capital Partners and Cohen Private Ventures, the family office of hedge fund billionaire Steve Cohen, to take Collectors Universe private for about $700 million.
For those who are unfamiliar with Collectors Universe, they provide “authentication and grading services to buyers and sellers of memorabilia, including sports cards, coins and vintage autographs.”
From a business perspective, Collectors Universe can be broken down into two main segments — which represents about 98% of their revenue:
PSA — the world's largest third-party authentication company; which specializes in card grading as well as autograph and memorabilia authentication. PSA has certified about 38M cards, autographs and other collectibles since 1991. The grading service accounted for about $45 to $50 million in revenue last year.
Professional Coin Grading Service or “PCGS” — PCGS is “the most respected name in coin grading, authentication, attribution, and encapsulation service since its founding in 1985.” Since 1986, PCGS has certified over 45M coins, banknotes, medals and tokens worldwide. PCGS accounted for about $30 million in revenue last year.
Furthermore, here is an overview of their entire business (Source):
Located in Santa Ana, California
Almost 600 employees worldwide
Did $80 million in FY 2020 revenue, which was a record for the second consecutive year.
The business has gross profit margins of 57%, about $37 million of cash on hand, and paid out over $6 million in dividends last year.
Collectors Universe certified 5 million collectibles last year, or about 20,000 per day, which moved them north of 80 million collectibles certified all-time.
While the deal was announced yesterday at “a premium of approximately 30% over the Company’s 60-day volume-weighted average price,” it really only represented a 3.7% premium to Friday’s closing price of $72.55 — due to the stock trading up considerably the last couple months.
As the trading card market has become more liquid, and investors continue to look at it as a real asset during economic uncertainty, Collectors Universe has seen their stock more than triple in the last six months alone.
Speaking of the trading card market, what has investors so excited?
Check this out…
Since 2008, the PWCC 500 Index—which tracks trading card returns—has a ROI of 216% compared to 135% for the S&P 500.
Sure, there are obvious concerns around liquidity, access, and storage, but the ability for trading cards to act as a hedge during uncertain economic times—think 2008 & 2020—has investors pouring money into the marketplace.
Whether it’s fractional share companies like Rally Rd. and Otis—which allow you to buy a piece of expensive collectibles—or new portfolio management tools like ALT, the growth in collectibles has resulted in an influx of cash being invested in the space.
Interestingly enough, authentication and grading infrastructure has remained relatively unchanged — even commonly referred to as “underutilized” and “underdeveloped” by most market participants.
The best part?
A superstar investment team of Mets owner Steve Cohen, collectible enthusiast Nat Turner, and minority Charlotte Hornet’s owner Dan Sundheim are about to change that.
Their overall plan is unknown, but you would assume obvious things like ridiculously long lead times should get fixed right away.
What am I talking about?
Just look at the premium you have to pay to get cards authenticated and graded in a timely manner.
In a world that’s built on speed and effciency—I’m looking at you Amazon—that will have to change.
Outside of fixing authentication and grading lead times, other likely changes include Collectors Universe expanding their grading capabilities and entering into ancillary services like helping collectors buy and manage their collections and even potentially helping large investors scale into the trading card market.
Simply put, the possibilities are endless.
Even better — with financial professionals and a trading card market enthusiast leading the way, they’re going to turn a historically inefficient and inadequate marketplace into a digital powerhouse.
In the end, Collectors Universe has a deep competitive moat and an unbelievable abundance of proprietary data at their disposable. It’s going to be fun to watch Steve Cohen, Nat Turner and Dan Sundheim build this into a multi-billion-dollar business.
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it might generate north of 195 million
spin off of pcgs likely???