Advanced Marketing Services, which has been working to lessen its dependence on its wholesale business with the warehouse clubs, has reached an agreement to acquire Publishers Group West for $37.3 million. The deal does not include the Avalon Publishing Group, which PGW founder Charlie Winton and a group of employees will buy before the sale of the distribution business. AMS will have no ownership interest in Avalon, although Avalon's titles will continue to be distributed by PGW. In addition, AMS is supporting the Canadian distributor Raincoast Books' purchase of PGW Canada. AMS owns a 25% stake in Raincoast.
AMS entered the distribution market last April with the launch of Advanced Global Distribution (News, Apr. 2). Although the division has added a number of clients in other countries, growth has been slow in the U.S. The purchase of PGW immediately makes AMS the most significant player in the distribution field. Michael Nicita, AMS president, had previously told analysts that the company's distribution arm would become a "hundred-million-dollar" operation. PGW had revenues of approximately $125 million in 2001 "with a record of profitability" and margins in the 20% 30% range, Nicita noted. Winton will remain president of PGW for the next year to help with the transition.
Over the course of the next several months, AGD's domestic and international clients (including AMS's own publishing program) will become part of PGW, which will keep open its Reno, Nev., warehouse. PGW management will report to Kevan Lyon, v-p for merchandising at AMS. PGW executives will remain in Berkeley, Calif., and its New York City sales office will remain open.
Publishers distributed by PGW expressed optimism over what the deal could mean for their titles. "I don't think AMS is suddenly going to start selling the most experimental literary effort to the masses," said John Oakes, publisher of Four Walls Eight Windows. "But like many independents, we have books meant for a broader audience. If AMS could help us get to it, that's a good thing."
Context Books publisher Beau Friedlander, while acknowledging that "there are some books distributed by PGW that are close to breaking out in a big way" and would be aided by the sale, also wondered if "the implication that there's direct access to a larger market might pressure publishers to acquire accordingly, which, from a purely idealistic standpoint, can only have a negative effect on editorial." He added, "I'm having a hard time imagining PGW without Charlie Winton, but hopefully this is a little death and a very big birth."
And while some observers raised the possibility of books from smaller houses getting lost in the shuffle, one publisher noted, "PGW is already pretty big in terms of number of titles, so if that wasn't a concern before, it shouldn't be one now."
Booksellers appeared not to equate the purchase of PGW by AMS with Barnes & Noble's failed acquisition of Ingram. Richard Goldman, owner of Mystery Lovers Bookshop in Oakmont, Pa., said, "There are a couple of critical differences [between this deal and B&N buying Ingram]. PGW is the sole direct source for the publishers they distribute. It's not an Ingram [i.e., a wholesaler]."
Sales Up 8.5% in Quarter
On the financial side, AMS' growth continued. For the third quarter ended Dec. 29, 2001, sales rose 8.5%, to $267.1 million, while net income increased 16.6%, to $13.3 million. The company attributed the gains to increased business with Borders Group, significant gains in its international divisions and improved sales through warehouse clubs. The company's bottom line was helped by a drop in the return rate to 16% from the low 20% range in the first two quarters of the year. Nicita explained that after depressed sales of bestsellers in October and November, sales improved dramatically in December, resulting in a "fairly good" quarter for bestsellers.
