Tuesday, April 05, 2011

Gen Fukunaga and Investor Group Buys Back Funimation - for Just $24 Million

HEH. I had noticed that there seemed to be a lot of selling of NAVR stock over the last few days, because something was driving the price down, and now I'm reading this from the Anime Economatrix over my coffee this morning:

The media distributor Navarre Corporation announced on Monday that it has sold its anime company Funimation to a group of investors that includes Gen Fukunaga, who is also Funimation's chief executive officer. The price of the all-cash transaction is US$24 million. Navarre will continue to serve as Funimation's exclusive distributor in the United States, as well as its logistics and fulfillment services provider. The investment group also includes John A. Kuelbs "who was then instrumental in selecting Darwin and Doug Deason to join the team," according to Funimation.

Gen Fukunaga gave this statement:

"We have a great history with Navarre and we thank everyone there for their longstanding support throughout the last five years. It is due to Navarre's logistical expertise and wide distribution network that we were able to grow our company into the Anime industry's market share leader. Though it will no longer be our parent company, Navarre will continue to distribute our product and we look forward to working with them for years to come. We are very excited about our new partners all of whom understand our vision and will help us develop our initiatives in physical product, digital entertainment and other growth areas."

In January 2005, Navarre Corporation announced plans to acquire from a group of private owners that included Fukunaga and the Cocanaour family . The acquisition was completed in May that year. Navarre initially offered $127 million dollars for Funimation ($100.5 million in cash and $26.5 million in Navarre common stock) and $17 million in performance based earnouts, for a total of $142 million. Adjustments to the value of the Navarre stock and cancellation of the earnout payments brought the total price for Funimation down to $114 million, $90 million more than today's announced sale price.

Funimation's 2004 net sales totalled US$72 million, with pre-tax income of US$29.8 million. Earlier this year business reporter Eric Wieffering estimated Funimation's 2010 net sales at US $35 million and pre-tax income at US $10 million (Funimation's 2010 financial year ended on March 31, 2011).

Last year, Navarre announced that it was considering selling Funimation. In September, the company stated that it had six potential buyers, but announced in January that it had received no adequate offer and was considering halting the sales process.

Gen really is the smartest guy in the room in the R1 Anime biz, and is one of the few people who has actually gotten rich from it. He put together this little Anime company with the help of a some private investment money, built it up with the help of his family connections in Japan, and sells it a few years later at the top of the market to Navarre for $142 Million, and then (with the help of a little more private investment money) buy's it back from the same now debt laden company six years later for $24 Million - 17 cents on the dollar - and got to run the thing the whole time. Unreal. In the end, Gen had to round up a group of investors who could easily afford to loose a few million.

So there is really nothing happening here except that Gen is getting richer and Navarre shareholders take a bath. After all, shareholders usually do - it's always those big money private equity guys that come out roses.

Update: Reid Porter, the COO of Navarre says: "This transaction ends a comprehensive sales process undertaken over the last year. As previously discussed, FUNimation's future strategies and associated risks to execute them are not in line with Navarre's strategic direction." In other words, we no longer have to risk loosing more money in a declining R1 Anime industry.

Cary Deacon, and CEO of Navarre says: "Navarre will be able to deploy the funds generated from the sale of FUNimation to build or acquire new businesses and services to diversify our revenue streams that will support our long-term objectives." Cary, it seems, thinks there are better places to deploy their capitol than in the Anime industry.

The folks at Navarre seem to be pretty happy about getting Funi off their books. NAVR shareholders seem less enthused. Stock is trading flat on the announcement. Looks like all the folks 'in the know' got out already over the past few weeks.

UPDATE 2 (Apr 6): Cary Deacon, the CEO of Navarre was fired today by the board of directors. I guess some of the larger shareholders have had enough.


Unknown said...

It is kinda scary that a market leader like funimation has dropped in value so much. At least they did not "fall off the boat" like geneon and adv.

D2M said...

Do you think Funimation will.. you know.. continue existing? I'm starting to get worried. How many of the "bring anime over to the US" companies are left now? Some of my favorites already folded, and Funimation is one of the few left that can dub decently. :(

Robert said...

I don't think much will change for now. Gen didn't put his own money up to fold the company, though I do think long term there may be some changes. The new investors will be wanting to see a return, and won't care too much on what that return comes from - so that may mean they will have to shift some focus off of Anime and on things that are more profitable. Gen was talking last year that they wanted to get into co-productions, which would mean more resources devoted to developing their own properties and less to bringing over exisitng stuff from Japan. But we'll have to wait and see. In the mean time, I hope the channel stuffing Funi has been doing for the last few months to get their numbers up ends.

nhat said...

Just wondering but why was Cary Deacon fired for?

Robert said...

Just wondering but why was Cary Deacon fired for?

If you look at the numbers for the Funi deal, and NAVR stock performance over the last couple of years, I think that's pretty obvious.