Taking a step into the big leagues, wellness, mind-body and fitness entertainment company Gaiam (Nasdaq: GAIA) has said it intends to pay $40 million to buy the assets of GoodTimes Entertainment, which has a video library containing more than 2,000 titles.
The deal, announced July 12, is pending federal bankruptcy court approval. GoodTimes Entertainment filed for bankruptcy protection on July 11.
Once the acquisition is approved by the bankruptcy court, Gaiam will be one of the top 10 studios based on overall DVD market share and the sixth-largest market share in non-theatrical DVDs -- surpassing the likes of Twentieth Century Fox, Universal, Columbia Tristar and MGM.
GoodTimes Entertainment is a media company that creates and distributes entertainment programming and home video products through various channels, including television, theaters, retailers and the Internet. Among its 2,000 titles are wellness franchises such as "The Firm" and "Tae Bo," children classics such as "Benji" and "The Jungle Book," and numerous theatrical releases.
With the acquisition, Gaiam said it expects to generate more than $200 million in annual revenue. Gaiam's home media will be carried by more than 40,000 retail stores in United States, in addition to its television and theatrical distribution. Gaiam also expects to distribute 20 million catalogs per year and have about 7 million direct customers.
In the company's core wellness/fitness category, Gaiam said it will expand its leading market share to approximately 37 percent.
"Our successful penetration of specialty retailers, combined with GoodTimes Entertainment's strength in mass market, will create an ideal distribution platform for independent films and other home video titles," Jirka Rysavy, Gaiam chairman and CEO, said in a statement.
Gaiam expects to close the deal by the end of the third quarter. Gaiam said it will finance the purchase with existing cash or borrow under its credit facility. Gaiam recently increased its cash position with the sale of Class A unregistered common stock to funds advised by Prentice Capital Management.
According to a filing with the U.S. Bankruptcy Court for the Southern District of New York, GoodTimes Entertainment owes more than $100 million to hundreds of creditors. Quadrangle Capital Partners bought the company in 2003 for an estimated $90 million plus around $160 million of debt in a deal seen as a way for the private equity firm to invest in the growing direct-response marketing industry. Quadrangle Capital was banking on sales of both VHS and DVD formats to make its investment work in the company.
But, as more people switched to DVD players, sales of the VHS format did not maintain the kind of momentum investors thought it would -- putting the company heavily in debt. Gaiam and Quadrangle began to negotiate the acquisition a month ago, before GoodTimes Entertainment filed its bankruptcy plan in New York.
Shares of Gaiam spiked $1.28, or 18 percent, to close at $8.40 on the Nasdaq. The stock is now trading at a 52-week high.