RAPAPORT... In August, Collectors Universe, Inc. (Nasdaq: CLCT), a provider of authentication and grading services to dealers and collectors of high-value collectibles, bought the American Gemological Laboratories (AGL). What does this mean for the plans and directions of AGL? Rapaport Diamond Report had the following discussion with Cap Beesley, president and founder of AGL, concerning the future of AGL.
Rapaport Diamond Report: How long has this deal been in progress? How did it happen?
Cap Beesley: Collectors Universe had a game plan. They are already in the coin, currency, stamps, trading cards and autograph/memorabilia markets. They felt they had reached a plateau in those markets, and they were looking for new markets to expand. They raised $60 to $65 million to aggressively pursue the gemstone and jewelry market.
At the same time, they narrowed the intent of the corporation. Collectors Universe does not profit in any way from the selling of any products. Their sole mission is the authentication of high-value products.
To enter the diamond grading markets, they first purchased Gem Certification and Assurance Lab (GCAL), which is operated by Donald Palmieri. Next, they decided to move into colored gemstone grading. I was consulting with Palmieri about another project when the idea of Collectors Universe and AGL first occurred. We had a general discussion nine or ten months ago, but it really went nowhere. We went back and forth for a long time. Finally, in August, Collectors Universe was really determined to get the deal done. Everything just fell into place.
RDR: What were the financial terms of the deal?
CB: I got $3.5 million up front. In three-and-a-half years, if we reach certain benchmarks, I get another $1.5 million. In five years, if we reach certain benchmarks, I get another $2 million.
I am providing 5,000 colored gem samples from various countries to create a collection of specimens demonstrating the various enhancements and treatments. These stones will provide a standard against which other stones may be compared.
RDR: How long will you remain the president of AGL?
CB: I have a contract for three-and-a-half years, with an option to renew the contract for another two years at that time.
RDR: Have your responsibilities changed since AGL was purchased?
CB: Well, they have definitely increased and we have many projects going at once. For example, we have entirely new security with new cameras and safes. Also, we are redesigning the AGL office for 10 to 15 workstations for new graders. We now have public relations, marketing, human resources and information technology departments. In other words, I interact with numerous people these days. Things happen very quickly when you deal with another corporate entity.
RDR: We have heard Collectors Universe rented an entire floor in your building that has room for 60 graders. Is that accurate?
CB: No, the floor they rented was for GCAL or new diamond graders. We had the choice of moving to that floor, but felt we had too much money invested in this space. However, the new space on the 27th floor has video conferencing abilities with Collectors Universe in California so we can all communicate.
RDR: Is it true that Collectors Universe is going to commit $100 million to marketing the diamond and jewelry business to the public?
CB: No. The important number is $60 to $65 million. That includes the amount of money they will use to buy important players in the industry. For example, they just bought Gemprint for $7 million. I have heard if it takes $100 million to position the company in this market, they will spend it.
RDR: Let’s talk about the AGL cert. What changes can we expect?
CB: Let’s start at the top and work down. The top AGL document will be Platinum. This will cost $2,500. It will include a full AGL grading report with country of origin, a letter about the material, the gemstones’ spectra and an 8-by-11 image of the stone. It will contain more detail than what is usually seen and will be a 7- to 8-page document. Of course, it will be presented in an upscale binding.
The next level is Gold. That is the document everyone is used to already. Of course, it includes color/tone, clarity, cutting/finish grades, brilliancy, country of origin and treatment. The price varies on the size and type of material.
The brand-new levels will be Fast Track One and Two. These grades will be guaranteed.
Fast Track Two will be a verbal description of the Gold grading report. For example, the new report might say “good” for the finish, instead of the numbers 5 to 6. The color grade would say “very good” instead of 3.5. Treatment issues will be a simple “yes” or “no” with a standard comment. There will be no country of origin on this document. This report will cost $75 and the gemstones can also be laser inscribed for a small fee.
Fast Track One is the size of a credit card. Imagine a two-sided tent. Each side will have information about the stone. It is designed to sit upright in a jeweler’s display case. The front side will have the image of the stone and information about the stone. It will also contain enhancement information that is compliant with the Federal Trade Commission/state requirements. The back will contain general supporting information about the material. These cards are also color coordinated to the species. For example, rubies will be in red cards and aquamarine in light blue, etc. This product is available for $25 each when 25 stones are submitted.
RDR: How are you going to market these new products?
CB: Although it is going to take a great deal of planting and watering, we are going to market to the consumers and the retail jewelers. We are using the push/pull technique. We want the consumer to go into a jewelry store and ask for an AGL document. They should have confidence this is a publicly traded company. Everything is transparent.
We are going to do seminars, trade shows, the internet and other media. I just saw the new print campaign. It is a $200,000 to $300,000 buy. We also have the lobby at the Las Vegas Show.
RDR: Any final words?
CB: This vehicle has given me an opportunity to do on a grand scale what I was never able to do myself. Collectors Universe is stepping up to the plate with resources and funding. For the first time in 40 years, we have something brand-new on the landscape. A publicly traded company is a new dimension in this business. The main goal is to make it easier for consumers to buy with confidence and help retail jewelers sell more colored gemstones.
If this doesn’t work, I don’t know what will.
Article from the Rapaport Magazine - December 2006. To subscribe click here.