Dick Smith is the Greatest Private Equity Heist of All Time

[EEVblog]

I think we need an NDA smiley? This will have to do 

[aargee]

Sort of brings up an interesting point, whoever buys the DS IP and *Customer Data* - will they have to stick to whatever the original customer agreement for the use of such data was.

i.e. say if one of the privacy terms was "Not to be given or used outside of the DS organisation" or "We will never use your data for ... blah blah blah..", DS is a company which essentially now won't exist, so the data is useless? Or do those agreements mean nothing here or anywhere?

Say $50k for the IP. I reckon Gerry Harvey would be interested or the Good Guys, etc it's peanuts in the advertising game.

[dannyf]

i.e. say if one of the privacy terms was "Not to be given or used outside of the DS organisation" or "We will never use your data for ... blah blah blah..", DS is a company which essentially now won't exist, so the data is useless? Or do those agreements mean nothing here or anywhere?

It depends on the nature of the sale.

In a normal transaction (DS selling it to others), the customer agreement is enforceable and the buyer of that data cannot violate it.

If the transaction is sale of the equity, the new buyer can use the data as long as it is in comformance with the customer agreement - here the buyer essentially becomes DS.

In a US bankruptcy, the original customer agreement has been white washed and is void and not enforceable so the buyer of the customer data can do whatever s/he deems appropriate - obviously subject to whatever laws there are.

Unfortunately, bankruptcy laws vary significantly from one jurisdiction to another so ...

[TerraHertz]

A friend emailed me this very concise summary of what happened with Dick Smith company. No attribution and I can't find the original source with google, sorry.
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Asset stripping in action: Why is Dick Smith Electronics closing down and why are it's 3,300 employees now out of work? Let's run through a very simple timeline of events in plain English.
1. In 2012 Anchorage Capital, a private equity group, purchased Dick Smith from Woolworths for $115 million.
2. Anchorage pays $20 million in cash with the balance plus interest to follow.
3. Dick Smith has cash reserves of $12.6 million so Anchorage has effectively paid only $7.4 million.
4. On 26 November 2012, Dick Smith had inventory that was valued at $371m but Anchorage now wrote the value down by $58 million.
5. In 2013 Dick Smith had EOFY clearance sales where the stock was sold off. The clearance sales saw $200 million of stock sold for $140 million (the operating cash flow) but due to the write downs $7 million was profit. Dick Smith did not restock the inventory so the $140 million was now classed as profit.
6. Anchorage uses $117 million of the "profit" to pay Woolworths the balance of the purchase plus interest and uses the rest to open 15 new stores and take over the electronics departments of David Jones to maximise the company’s initial public offering (IPO) valuation.
7. Anchorage now has a company with little inventory, huge sales growth and big profits. The books look amazing and Anchorage now forecasts a huge profit for 2014 and the business is floated on the stock market at $2.20 a share which brings in $520 million.
8. Anchorage sold the last of the shares in late 2014 and walked away with a $500 million return for their $10 million investment two years earlier.
9. The new shareholders were now footing the bill for repurchasing inventory. This should have resulted in a poor operating cash flow, but most of the repurchasing was funded by suppliers. Come the end of the 2015 financial year, the operating cash flow was negative $4 million and the suppliers were demanding payment.
10. The shareholders are now forced to take out a $71 million loan to finance purchases while sales and profit margins are sinking. Now owing $150 million Dick Smith goes into administration.
11. In 2016 the stores are closing down and 3,300 employees are looking for new jobs.
Economist Jason Murphy said Anchorage had used a perfectly legal accounting maneuver to write down the value of its inventory, raise profits through a national fire sale, neglect to restock shelves and open a massive number of new stores to maximise the company's IPO valuation. It's what private equity firms do, and why some people live in $12 million harbourfront mansions, while others scratch their heads wondering what just happened.
It's just an example of how capitalism works!

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[mswhin63]

Sad indictment of our society that companies hold over everyone on blatant risk ventures all in a way to make a quick buck.

No wonder the developed world is full of cynicism. 

Getting really frustrated the way Australia is heading and wonder how the new "Innovation Boom" will be played out.

[profany]

wow , have no idea of that, wht a greate sketch

[dannyf]

Many of those stories seem to be written by people who lack even rudimentary finance knowledge.

Take this for example:

which brings in $520 million.

That was widely quoted but if the writer had followed the story then or had just some common knowledge about IPOs they would know that there was a lock-up period and the equity didn't quite realize that valuation when they sold their shares.

This is really a story of someone finding a gem in the rough and dumb investors got hosed. That kind of price discovery and that kind of punishment for stupidity is exactly what you need in a free market, to avoid bubbles, and to reward intelligent investing.

If we had more cases like that, we would have waded out dumb investors and we would not have had financial crisis. So those people you are trying to crucify are exactly the people you need to have.

I suspect all this publicity is drummed up for a lawsuit sometime down the road. And the dumb public is just helping to shot themselves in the foot.

[hamster_nz]

This is really a story of someone finding a gem in the rough and dumb investors got hosed.

It was more like polishing a turd until it shined like a diamond...

[HackedFridgeMagnet]

Funny, it doesn't smell like a diamond?

[hamster_nz]

Funny, it doesn't smell like a diamond?

But look, it is all shiney? Can you see the sun glinting off of it? It positively glistens!

Go on, by a little of this rare brown diamond - how can you lose!

If you don't buy it somebody else will, and you will be sorry!

[VK3DRB]

Many of those stories seem to be written by people who lack even rudimentary finance knowledge.

Take this for example:

which brings in $520 million.

...This is really a story of someone finding a gem in the rough and dumb investors got hosed. That kind of price discovery and that kind of punishment for stupidity is exactly what you need in a free market, to avoid bubbles, and to reward intelligent investing.

If we had more cases like that, we would have waded out dumb investors and we would not have had financial crisis. So those people you are trying to crucify are exactly the people you need to have...

Everyone is entitled to an opinion I guess, even those who believe in the Illuminati and other frogshit.

For a start, I would not call Anchorage "intelligent investors". They are more like a "pack of greedy parasites". 3,000 decent and honest workers are losing their jobs. Where is the evidence Anchorage cares one bit about the Dick Smith workers?

For a healthy society to function and prosper there has to be goodwill, altruism, fair play, helping ones neighbour out, doing your fair share and paying your fair share, honesty, respect for others, compassion, volunteering and charity work; as well as the desire to enrich the lives for all. I didn't see any of those traits in the "successful" GFC bankers, Wall Street snake oil salesmen and mortgage scammers. The US government used money it effectively stole from taxpayers to prop up these parasites and given them massive bonuses.

I suggest you do some research on a US company called Lincoln Electric. A remarkable company that has stood the test of time. http://www.lincolnelectric.com/en-au/company/Pages/company-history.aspx. It it were driven by greedy investors and private equity and your brand of capitalism, it would have long gone.

In Iceland the entire country was left to go bankrupt. Many of its banking heads and parasites went to jail and rightly so. Now its economy is greatly improving, especially in the high tech industry and tourism. Not so the USA. It should have been left to go bankrupt so it could heal. Unfortunately it still has a big hangover...

http://www.usdebtclock.org/

Free market capitalism is destined to fail because of human trait of greed. The same reason why communism has failed miserably.... greed by a few hypocrites who prosper on the sweat of those they control.

[dannyf]

"Free market capitalism is destined to fail because of human trait of greed."

Looks like the only thing you hate more than capitalism is to vote with your feet and actually live in a non-capitalism utopia of your dream.

I wonder why?

[VK3DRB]

"Free market capitalism is destined to fail because of human trait of greed."

Looks like the only thing you hate more than capitalism is to vote with your feet and actually live in a non-capitalism utopia of your dream.

I wonder why?

I should have said uncontrolled free market capitalism is bad thing. Ever seen Metropolis?

[dannyf]

"I should have said uncontrolled free market capitalism is bad thing"

Where do you find uncontrolled capitalism?

[VK3DRB]

"I should have said uncontrolled free market capitalism is bad thing"

Where do you find uncontrolled capitalism?

Right here in Australia...in the Commonwealth Bank, the most unethical pack of bastards one could ever find in business.

http://www.smh.com.au/business/banking-and-finance/comminsure-when-is-enough-enough-20160308-gnds35.html.

You might find these bastards as heroes for making billions of dollars for their money hungry shareholders, despite them treating customers and even some of their own employees worse than dog turds.

A good example of uncontrolled free market capitalism where extreme greed rules at the complete expense of ethical behaviour. And it is uncontrolled because it has been going on for years under the "watchful" eye of its CEO and the Australian government. It is if anything, out of control.

[TerraHertz]

Right here in Australia...in the Commonwealth Bank, the most unethical pack of bastards one could ever find in business.

Seconded.
I've mentioned my experience with CBA before: http://everist.org/doc/base/title_deed/title_deed.htm

[cimmo]

Free market capitalism is destined to fail because of human trait of greed.

The problem is that we don't actually have 'free market capitalism'. We have privatised profits and socialised losses.
This will still fail, eventually.
And it will be very ugly.

[dannyf]

"We have privatised profits and socialised losses."

For every profitable business, there are tends, hundreds or thousands failures that produced for their investors losses.

Fortunately, you don't hear those stories.

Or if profits are so easy and losses so socialized, only fools wouldn't jump into the game.

You would know that if you had out your own capital at risk. Try it and you may appreciate those profiteers more.

[dannyf]

It is always easy and tempting to criticise others for taking outsized profits if you haven't put your own money on the line, if you haven't worried about making that payroll, if you haven't mortgaged your house to start your own businesses.

I have done them all, and I can tell you the most foolish thing I have done in life was to start a business. No amount of payoff will ever get me to do that again, especially in today's environment.

[HackedFridgeMagnet]

Watch out Anchorage is at it again.

Only I don't think Bunnings has to watch out, just the people with money in superannuation.


http://www.smh.com.au/business/retail/anchorage-hatches-plan-for-new-force-in-hardware-20160310-gnfbx9.html

[dannyf]

I see some poor retirees who hold shares in those entities aa potential winners.

Or LP investors in anchroage if this turns out to be as successful as the previous transaction.

[HackedFridgeMagnet]

One second thoughts,
If we are being told in the newspaper that Anchorage is going to buy then it's more likely that they decided not to buy but that someone is trying to ramp a few extra cents out of the share price.

So sell those Metcash shares now.

[VK3DRB]

Woolworthless also owns Home Hardware - a very profitable and well run business. If Anchorage or any other private equity scum acquires Home Hardware, they will ruin a great hardware chain.

[dannyf]

If Anchorage or any other private equity scum acquires Home Hardware, they will ruin a great hardware chain.

Then you should mortgage everything you have, and short the stock. Not only you will punish Anchorage for not controlling their capitalism the way you want, you will also make boat load of money by following your own words.

You should also convince your friends, your relatives, your neighbors, and your co-workers, etc., to all join. You will make loads of rich friends in the end.






Too bad, you will not have enough conviction in yourself to follow through.

[VK3DRB]

If Anchorage or any other private equity scum acquires Home Hardware, they will ruin a great hardware chain.

Then you should mortgage everything you have, and short the stock. Not only you will punish Anchorage for not controlling their capitalism the way you want, you will also make boat load of money by following your own words.

You should also convince your friends, your relatives, your neighbors, and your co-workers, etc., to all join. You will make loads of rich friends in the end.



Too bad, you will not have enough conviction in yourself to follow through.

I actually work hard and smart for all the money I have. I don't rip off anyone and I certainly don't gamble on the stock exchange. Low risk, low return, low stress, long and happy life. And I can sleep at night. That's the way I like it.

A bloke I knew made a massive fortune doing similar to what you said. He mortgaged everything and borrowed off friends and family and put all the money into a ponzi scheme where he made 63,000% profit in around 6 months. He made in excess of $100 million today's currency whilst other fools in the scheme lost everything. But the chap was a miserable little toad who had zero integrity. His word was worth nothing. One of his kids committed suicide. He treated his wife like a piece of garbage. In my opinion he is a bigger fool than those gave him all their money in the ponzi scheme.

Some people measure success on how much money they can make, but it always comes at a price. But what is the point of gaining the whole world when you lose your soul in the process. I suggest you watch a film called The Big Short.