Dick Smith founder blames private equity firm for chain's woes

Dick Smith sold his electronics firm in 1982 but he still feels an emotional attachment to it. Photo / Getty Images
Dick Smith sold his electronics firm in 1982 but he still feels an emotional attachment to it. Photo / Getty Images

The founder of failed electronics retailer Dick Smith has criticised the private equity firm that floated the chain.

Dick Smith, who gave his name to the chain, said that Anchorage Capital Partners' A$520 million IPO was drastically overvalued and called on those who had made money out of the float to do the honourable thing and guarantee customers' deposits, gift cards and deliveries.

He told news.com.au: "Some of the people who made a fortune out of the recent float, they should pay back those people who've put down deposits. The company could not possibly afford to be that indebted, or have that value on the market."

Private equity firm Anchorage Capital paid A$94 million when it purchased Dick Smith from supermarket operator Woolworths in 2012.

The retail chain was floated on the stock market the following year with a market value of A$520 million, which had fallen to A$84 million by the time trading in the stock was halted on Monday.

In an online article published last year, an Australian fund manager said Anchorage had funded its acquisition of the business largely through stripping out cash from Dick Smith's balance sheet.

Anchorage had pulled off "the greatest private equity heist of all time", said Matt Ryan, of Forager Funds Management.

Dick Smith was put into receivership yesterday after a sales slump that left the firm with high levels of excess stock, which had to be heavily discounted in the lead-up to Christmas.

Prices were slashed by up to 80 per cent in the fire sale, but it failed to have the desired effect.

Receiver James Stewart, of Ferrier Hodgson, said that vouchers, deposits and deliveries could not be honoured because of the financial circumstances of the company.

"Affected customers will become unsecured creditors of the group."

Smith, who sold the business in 1982, said that there was no chance of him buying back the firm.

Receivers could struggle to find a buyer for Dick Smith, with the firm's receivership likely to signal the end of one of Australasia's best-known high street brands, says a retail commentator.

A lending syndicate led by HSBC and National Australia Bank appointed receivers Ferrier Hodgson to the struggling electronics seller yesterday. Dick Smith - which operates 393 stores, 62 of them in New Zealand, and has 3300 employees on both sides of the Tasman - has itself appointed McGrathNicol as voluntary administrator.

Yesterday, Dick Smith chairman Rob Murray said December sales had fallen below expectations.

Receivers have said that they won't guarantee customer deposits, vouchers or deliveries. Photo / Getty Images
Receivers have said that they won't guarantee customer deposits, vouchers or deliveries. Photo / Getty Images

"The company explored alternate funding, however, the directors formed the view that any success in obtaining alternative funding would not have been sufficiently timely to support short-term funding requirements and allow the company to order inventory during the next four to six weeks," Murray said.

"While confident on the long-term viability of the company, the directors have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period."

Stewart said it would be "business as usual" at Dick Smith while a restructuring and sale process was undertaken.

"We are immediately calling for expressions of interest for a sale of the business as a going concern," he said, adding that employees would continue to be paid by the receivers. But Chris Wilkinson, of consultancy First Retail Group, said he didn't think a buyer would be found.

"The challenge that Dick Smith's had is it's been in a no-man's-land since its rebranding - it just completely lost its mojo ... This [receivership] has probably signalled the end for the brand, that's our feeling."

However, competitors including JB Hi-Fi could be interested in acquiring retail sites, Wilkinson added.

Stewart said the retailer's New Zealand business was profitable and expected to be attractive to buyers.

Dick Smith's local arm reported a profit of $1.4 million in the year to June 28, down from $3.7 million a year earlier. Sales fell to $179 million from $199 million.

As a whole, the retailer had net debt of A$41 million as of June 28.

Profit rose 3.1 per cent to A$43.3 million in the firm's last financial year.

Dick Smith shares, which have plunged 72 per cent since the company downgraded its profit guidance in October, were suspended from trading following the appointment of administrators.

The stock closed at A35.5c before going into a trading halt on Monday.

What's hurting Dick Smith?
• A sales slump, which left the firm with excess stock in the lead-up to Christmas that had to be heavily discounted in a bid to bring in cash.
• Tough competition from online competitors, as well as bricks-and-mortar players such as JB Hi-Fi.
• Cashflow constraints and high debt levels - net debt sat at A$41 million ($43.8 million) on June 28.
• The end of support from its banking syndicate, which appointed receivers Ferrier Hodgson yesterday.

Short circuit: Time of Dick Smith's ups and downs

• 1968: Dick Smith, a young entrepreneur and electronics technician, opened a car radio installation business beneath a carpark in Sydney.
• 1970s: Interest in electronics and CB radio boom led to expansion.
• 1980: More than 20 stores in Australia and during the decade expanded to NZ.
• 1982: Smith completed sale to Woolworths, there was rapid expansion helped by PC boom and diversification. By late last year there were 393 stores in Australasia.
• 2012: Woolworths sold Dick Smith to Anchorage Capital Partners for less than A$100 million ( $106 million) which the following year launched a A$534 million public listing.
• 2015: Sales growth slowed, huge inventory problems and shares slumped more than 80 per cent.
• Yesterday: Put into administration and receivers appointed.

- NZ Herald

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