A Texas-based hedge fund is looking to take control of the future direction of Collectors Universe, the parent company of PSA.
Alta Fox Capital recently disclosed it owns a 5.4 percent stake in CU (CLCT) and says it wants to unseat the company’s current board of directors with new members it has nominated ahead of the CU’s annual meeting. Alta Fox thinks that despite ongoing reports of record-setting revenue, the company’s current board has been slow to innovate and take advantage of CU’s position as an industry leader.
In a letter to fellow shareholders, Alta Fox Managing Partner Connor Haley released a list of six nominees he hopes to replace current board members. The list includes Nat Turner, Co-Founder and Chief Executive Officer of Flatiron Health, Inc. and one of the hobby’s most advanced collectors of modern trading cards.
“Our nominees would work tirelessly with management to fix the bottlenecks in the core grading business, introduce valuable new digital services, and bring increased transparency to both investors and customers,” Haley stated.
After the news, CU’s shares jumped to a 20-year high of $32.91 at the close of trading Friday. Haley told shareholders he believes CU could be worth $100 per share within three years, with half of that value in the core business and the other half coming from new digital initiatives. CU’s current market value is approximately $250 million.
Haley told shareholders Alta Fox originally invested in CU “not to be an activist” but changed its mind after submitting a list of suggestions to improve business that was rebuffed by the current CU board.
“After an extensive research process that included conversations with past executives, industry participants, ex-employees, customers, and competitors, we developed high conviction that CLCT has numerous attractive opportunities for reinvestment that could significantly increase value for customers and shareholders alike,” he wrote. “We have since shared some of our suggestions for increasing shareholder value with the leadership of CLCT; while we had amicable discussions with Chief Executive Officer, Joseph J. Orlando, we felt that the rest of the Board was largely uninterested in listening to our suggestions and informed us that CLCT would no longer communicate with Alta Fox going forward. We were disappointed by such a dismissive response to a large shareholder, which heightened our concern that the Board is not acting in the best interests of shareholders. As a result, Alta Fox has been forced to escalate the matter to ensure proper governance and to maximize value for all shareholders.”
Haley argued that CU’s current board members are disengaged from the company’s investors and show little interest in investing in the company themselves. He claims they should be taking steps to improve efficiency and generate more revenue. One such issue felt by many customers is an ongoing battle to get their cards and other items authenticated and graded in a timely manner without spending for expedited service levels. PSA has a backlog of one million trading cards in its system, with demand far outstripping the ability of its staff to meet turnaround times.
“While CLCT has recently announced hiring initiatives and operational improvements, years of similar announcements leave us doubtful that these efforts will quickly solve their capacity problem,” Haley wrote. “Improving grading turnaround times and delivering new and innovative services for customers is a top priority for Alta Fox and our slate of highly-qualified director nominees.”
If it can win seats on CU’s board, Alta Fox hopes to improve CU’s ability to generate revenue beyond grading and authenticating cards and coins. Haley also mentioned potential mergers and acquisitions, outsourced development and partnerships with industry peers as possible targets for improving its business model.
“In recent years, various competitors have innovated by offering services such as unique marketplaces, inventory storage, and pricing analytics for collectibles,” Haley wrote. “The Board needs rejuvenation, creativity, shareholder representation, and better capital allocators to successfully digitally innovate and drive value for all.
“While CLCT’s core grading business offers attractive unit economics, it has limited scalability due to significant labor costs. We believe the Board should execute digital and scalable recurring revenue initiatives that will materially increase CLCT’s overall margins and earnings power. Most of the services we are proposing are already offered in the marketplace, but the offerings remain fragmented and unoptimized. We view CLCT as the natural consolidator of the industry given their crucial role as ‘gatekeeper’ in the coin/card market.”
If it’s unable to win seats on the board, Haley suggested that Collectors Universe should consider going private.
CU’s current board of directors includes Chairman of the Board Bruce A. Stevens along with Deborah A. Farrington, Joseph R. Martin, A. J. “Bert” Moyer and CU’s President and CEO Joe Orlando. However, Alta Fox praised Orlando in its letter and said it had no plans to remove him from his role.
“CLCT has a more than capable leader in Joe Orlando. Joe has built PSA into the crown jewel of CLCT and we think his experience is an asset for the Company. Our plan would prioritize recruiting the right digital talent to support Orlando in these initiatives and would ensure investments are made in a customer and shareholder friendly manner. While we are nominating a full slate of directors, we reserve the right to remove a nominee(s) from our slate at a later date to leave room for Joe Orlando.”
Haley said Alta Fox “will be releasing more details over the coming months, including our full operating plan which has been thoroughly vetted by customers and industry experts. This plan outlines specific digital and recurring revenue opportunities and further highlights the need for a rejuvenated Board.”
The slate of Alta Fox’s nominees for the CU board include Haley, Turner and
Lorraine Bardeen: General Manager, Dynamics 365 and Power Platform Industry Solutions & Customer Success at Microsoft Corporation.
Damian Blazy: Principal of Portfolio Operations at OpenGate Capital Management, LLC.
Judy Krandel: Chief Financial Officer of Recruiter.com Group, Inc., effective at the end of June. Previously, Krandel worked as a Senior Business Development and Mergers & Acquisitions Consultant at PeerStream, Inc.
Susanne Meline: Co-Founder and Special Situations Advisor of Francis Capital Management, LLC and as an Arbitrator for FINRA.
Last year, Collectors Universe held its annual shareholders meeting in December.
Alta Fox bills itself as “an adviser to funds that are in the business of buying and selling securities and other financial instruments” with a “specialized focus in the small and micro-cap space.”
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