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Friday, Aug 19, 2022

Wholesaler Sold On Retail Gold

A-Mark Precious Metals Inc. in El Segundo is looking to expand its customer base beyond wholesale to retail with its acquisition last week of Santa Monica’s Goldline.

The move positions publicly traded A-Mark to be a major player in a fragmented industry that has seen low demand amid the economic recovery of recent years but last month saw the price of gold rebound to a one-year high of $1,300 an ounce, analysts said.

“A-Mark is streamlining its operations by sending a message that it’s serious about its business,” said Adrian Day, founder of Adrian Day Asset Management, a money management firm in Annapolis, Md.

The $10 million acquisition of Goldline, a direct retailer of precious metals that faced scrutiny over business practices during the recession, will bring with it 150,000 precious metals clients, A-Mark said. Those clients include traders of gold, silver and platinum along with bullion clients that collect and trade precious metals in the form of currency including coins, medals and paper.

A-Mark, which has 83 employees and a market capitalization of $122.3 million, buys gold on the open market and sells it wholesale to a wide variety of customers including financial institutions, bullion retailers, industrial manufacturers as well as coin and metal dealers. Its clients include HSBC Bank USA and Mitsubishi International Corp.

Goldline markets gold directly to consumers, often trading on fears over global events or national economic circumstances that spark the sort of concerns that lead investors to see the mineral as a safe haven.

A-Mark has some business-to-consumer operations, but with this acquisition, it brings them closer to a retail consumer base, which was Goldline’s business model, said Greg Eisen, analyst equity research firm Singular Research in Calabasas.

Another important aspect of the deal is the product itself, Eisen said.

“If you’re buying a precious metals dealer, you’re buying inventory, and this was primarily the case for A-Mark,” he said.

The former chief executive of Goldline, Brian Crumbaker, will lead the new subsidiary of A-Mark, which will be called Goldline Inc. It is unclear if Goldline will retain its Santa Monica office and what plans are in store for its employees.

Neither Goldline and A-Mark returned calls seeking comment.

A-Mark reported a revenue increase to $5.6 billion from $5 billion for the first three quarters of its recent fiscal year ended March 31, and a decrease in net income to $5.9 million from $8.2 million over the same period last year. It has trading desks at its El Segundo office and in Vienna, as well as a logistics fulfillment center in Las Vegas. The firm’s stock, which trades on Nasdaq, closed at $17.40 a share Aug. 30, essentially unchanged from a week earlier and up 2.8 percent from the year before.

Singular’s Eisen said the fragmented nature of the industry means it isn’t always clear who’s a client, a competitor or both.

“Many of A-Mark’s customers can be considered competitors, in that it makes a two-way market which results in many customers also operating as its suppliers,” he said.

The Goldline deal will give A-Mark more clout, he noted.

“There are a lot of small and big players,” Eisen said, “so this is a positive for A-Mark as it transitions to include another set of clients, one it had not quite catered to in the past.”

Striking gold

A-Mark and Goldline came up as neighbors, both founded in Santa Monica in the 1960s.

A-Mark, which started in 1965 as a small precious metals dealer, grew a global presence through the 2005 acquisition of a majority stake by Irvine-based Spectrum Group International Inc., which took full ownership in 2012. The company went public in 2014.

Goldline, however, stayed under private ownership since its founding in 1960.

The company grew its bottom line and a questionable reputation during the recession of the past decade, when gold hit a record price of $1,800 an ounce in 2011.

Gold is a popular investment during tough economic times, and Goldline capitalized on this through commercials aired on conservative TV and radio programs, including Glenn Beck’s radio show. The company told the Business Journal in 2009 that its revenue that year was $500 million.

“Gold is an insurance against catastrophe for people concerned about monetary erosion and such, so you’re more likely to get conservatives who buy into the whole catastrophe thing,” Day, the asset manager, said.

The company came under scrutiny in 2010 when then-Rep. Anthony Weiner (D-New York) alleged it had overcharged customers and used shady business practices, calling for an investigation into Goldline.

“This is an industry that attracts high-pressure sales, but that’s not to say that there aren’t any honest people working in it,” Day said. “Goldline had a reputation of being a little aggressive.”

Customers accused the company of pressuring them into buying products they weren’t interested in and at high mark-ups, he said. Weiner’s call for an investigation by the Federal Trade and Securities and Exchange commissions didn’t go anywhere at that level, but it caught local attention.

The Santa Monica City Attorney’s Office filed a criminal complaint in 2011 alleging that Goldline was running “a bait and switch operation,” according to a statement released by the city’s consumer protection unit at the time.

Goldline settled with Santa Monica in February 2012, agreeing to a $4.5 million civil judgment and several provisions including clearly disclosing markups and the monitoring of sales calls by a third party.

Industry changes

The bumpy record of Goldline did not seem to be a factor in the A-Mark acquisition, with analysts saying consolidation was a natural step for the latter and reflects the industry’s future.

Day noted that there aren’t many companies that deal on the supplier and wholesaler front as well as the direct-to-consumer base on such a large scale.

“I suspect we’ll be seeing more acquisitions like these in the future, industrywide, because there are an unbelievable number of smaller players,” he said.

Goldline’s success during the recession could be a sign of the profit potential for A-Mark and other gold traders in the near future.

The price of gold has continued to rise in recent days as terror attacks and North Korean missile launches have stoked concerns among some investors about international security and the stability of the stock markets.


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