Dick Smith is the Greatest Private Equity Heist of All Time

[EEVblog]

Wow! I wish I was this smart!

https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/

[Muttley Snickers]

That was a damn good read Dave, an excellent insight into what goes on behind the scenes, thanks for sharing.

It reminded me of a dodgy brothers episode.

[krivx]

It reminded me of a dodgy brothers episode.

Ha, I had no idea Dodgy Brothers was a real sketch. I thought it was just something Dave says 

[Monittosan]

They closed a kit department that was still turning a profit 

[EEVblog]

That was a damn good read Dave, an excellent insight into what goes on behind the scenes

Indeed it does.
I had no idea it was so relatively simple to pull off something like that, just need to have the initial cash and a retail company on the ropes with lots of stock.
I'm surprised no one sniffed this out before the float (or no one cared)
Although some were weary it seems:
http://www.smh.com.au/business/dick-smith-float-a-commercial-riddle-that-doesnt-compute-20131125-2y638.html
http://www.fool.com.au/2013/12/05/is-dick-smith-a-buy-after-yesterdays-float/

[Kjelt]

Wow! I wish I was this smart!

But Dave, first of all you don't have $10M of your own money, and if you had would you risk it all in a business you don't have a clue about? 
Me if I had $10M of own money would quit my job tomorrow and start hobbying, but then that is what you are already doing  .
So actually if you had $100M you would still be doing the same thing tomorrow, so sleep well you already made it

[Marco]

The problem with private equity only really comes in when they use the stock market's ridiculously poor grasp of debt mechanics relative to management and load a viable company down with debt and throw it on the stock market and run.

PS. so basically each and every time, if only rich investors fell for it instead of my pension fund I wouldn't mind ... alas the stock market is collectively filled with idiots, some of which I have no choice but to let play with my money.

[GK]

If you read the SMH link Dave posted you will see the quote "Woolworths potentially left more than $400 million on the table because it was incapable of running a consumer electronics chain or had taken its eye off the ball - or a combination of the above."

Which is essentially the gist of it. With Woolworths (ASX:WOW) announcing a profit downgrade of up to 35% today it is clearly evident that the management are not up to it. Why can't they get up a competitive hardware chain like Masters? They have invested (wasted?) billions. What are Wesfarmers doing so much better in Bunnings that Woolworths management can't seem to compete with?  I like going to Bunnings but I don't like going to my local Masters store. It seems weirdly cold and unwelcoming but I can't put my finger on something specific. Except perhaps for the lighting and lack of customers. You just feel like something is happening somewhere else and no-one invited you.

The skill of private equity companies is to identify a business not being run well, or at least that they think they can run better, and cut it to the bone and make it as profitable as they can and then sell it. In pieces if necessary in order to extract as much value for their investors as they can.

"Following a profit downgrade yesterday, the shares are now valued by the market at $0.77, and investors in the float are sitting on a 65% loss of capital from the $2.20 float price."


Dicksmith remains the Masters in the consumer electronics retailing sector and that isn't going to change any time soon. It's much easier to differentiate between Dicksmith and its direct competitors than it is to differentiate between Masters and Bunnings though. Dicksmith's whole business model is flawed and dated. As a consumer electronics products retailer their product lines are too niche and sales of stuff (on which their bottom line is heavily dependent) like tablets and mobile phones fluctuate with trends in fashion as much as anything else - not anywhere near as much an issue for the likes of Harvey Norman (just for example) that sells everything from PCs, phones, tablets, audio visual equipment, etc through to washing machines, fridges, cook tops and ovens.


 

[Maxlor]

That's just the nature of the market. For every one who wins there is someone who loses.

You could also actually create value, instead of trying to screw people over to make a quick buck.

[EEVblog]

That's just the nature of the market. For every one who wins there is someone who loses.

You could also actually create value, instead of trying to screw people over to make a quick buck.

You could do that, but there is generally less risk and greater reward in screwing people over, that's why the big wigs do it that way.

[Marco]

Why should that be PE's problem?

Because not taking advantage of people's naivety is the moral thing to do.

[Marco]

Furthermore the investors in the PE company have a right to expect that the PE management will do the moral thing and behave as promised. Which typically is to always seek to maximise return on their investment.

Giving your word that you will only make decisions in favor of your clients, within the law, regardless of morality does not absolve you of immorality of decisions. It just means you were immoral in making the promise AND in making the decision.

[Marco]

You cannot have an effective financial system if you are going to require a PE board to usurp the role of the political and legal systems and make moral judgments themselves. That is not their job.

Sure we can, sociopaths would just self select themselves to run the financial system since they have no morals to impede decision making to begin with ... oh wait ...

[vk3yedotcom]

Receiver / administrator appointed.

Company to be wound up.

http://www.theaustralian.com.au/business/receivers-called-in-to-dick-smith/news-story/795a2e0e890a4627797fe260a5666cfa

(if link doesn't work, google Dick Smith bankers call in receivers or try below )

http://hotcopper.com.au/threads/receivers-called-in-to-dick-smith.2673607/#.VopfrPl96Uk

https://www.fool.com.au/2016/01/04/dick-smith-holdings-ltd-investors-could-be-in-deep-trouble/

http://canmua.net/world/dick-smith-shares-in-trading-halt-pending-debt-and-256894.html

[EEVblog]

Receiver / administrator appointed.

Exactly what those who pulled off the heist knew would happen.

[station240]

Company might have had a chance if woolies had sold it to someone with technical ability. But alas it was transfer from one idiot owner (a supermarket) to an even worse company only run by accountants and share traders. The DSE nearest me had two stores, within walking distance, even the store owners couldn't explain why.

Just about anyone on this forum could spend a day in their store and sort the junk from the stuff that's worth buying. Now if the people running the company did the same, it would be far more profitable.
They could have kept one store in each state that has electronics parts, remember the powerhouse stores ?

Don't buy shares in a business you don't understand, also applies to corporations buying each other. But no one listens, as they are idiots.

[hamster_nz]

It is a bit mean that they still have their "One day online Only Sale" on their web sites, and it is still taking orders.

I bet anybody who orders will not see their product. They should pull the pin straight away!

[sleemanj]

Looks like Dick's is circling the plughole now...

http://www.stuff.co.nz/business/industries/75618531/dick-smith-goes-into-voluntary-administration

won't be long.

 

[VK3DRB]

It is a bit mean that they still have their "One day online Only Sale" on their web sites, and it is still taking orders.

I bet anybody who orders will not see their product. They should pull the pin straight away!

NEVER trust private equity. I quite a job because of them - they borrowed $253 million to buy the company and the employees effectively had to pay it back. Private equity is there for one reason and one reason only - to make money. It is an unhealthy paradigm.

Dick Smith is now in receivership. Dick Smith lost the plot as soon as they stopped selling soldering irons and started selling irons for housewives. The name Dick Smith is now associated with failure, unless the receivers can try to revive something out of the ruins. Maybe Dick Smith himself should get back in there and turn it into an electronics company again. If anyone can, he can. But I suspect Dick was simply an opportunist when he sold out in 1982 and so he lost the dream 33 years ago. Dick Smith Electronics was once a respectable company, but in the last 15 years it have been a joke.

I wonder what will become of the Techxsperts. I feel sorry for them actually. No-one likes to be in a company going down hill fast. Maybe they should go back to uni and get a certificate of technology in electronics or an electronic engineering degree. At least with an EE degree, they will be prepared for the ubiquitous inherent instability in the electronics industry and unstable employment. 

[TerraHertz]

Thank god there's still Jaycar, who haven't lost the plot.

Dick Smith stores have been nothing but a painful reminder of what happens when corporate money vampires get control of a business that once had vision. VK3DRB, I went through the same experience, of working at a place that got taken over by idiot ghouls, who cared for nothing but share price pump & dump. It was horrific. I couldn't quit due to high salary, very close to home, and being in the process of rapidly paying off a mortgage. Took me a couple of excruciating years to get made redundant, and I swore to never work for corporates ever again. (The mortgage was paid off OK.)

It was a relief when the Bankstown DS store closed a few years ago, as going there always left me with a depressed 'world's going to shit' feeling. Like seeing an old friend turned zombie.

There's another Dick Smith store not far away from me. I've never been there, but think I'll go have a last browse. For closure.

[Tandy]

Shame to see another one go under but selling the same Chinese do-dahs as everyone else is just not sustainable.

[hamster_nz]

Thank god there's still Jaycar, who haven't lost the plot.

Depends on which plot you are talking about! What to by a gadget or a battery then sure....

I had a gift voucher to spend, and got (among other things) an XC4478 - a three Axis accelerometer to play around with.

The box (and Jaycar catalog) said:

"This module can measure +/-3g magnetic field full scale acceleration minimum"
"I2C interface"
"13-16 bit resolution."

The ADXL335 (and the module) has three analog outputs. It has been like that way in for at least a long while... It seems to me that they too no longer understand what they are selling (at least in the hobby electronics range).

[dannyf]

https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/

Written by someone who doesn't understanding accounting and clearly has no appreciation of capitalism.

For a free market to operate efficiently, it is pareto optimal for assets to be correctly priced (=price discovery). So there must be people who is willing to invest in price discovery, and be rewarded for price discovery. The Dick Smith case is nothing but someone discovering an under-valued asset and exploited it and got rewarded handsomely for it.

As those inefficiencies are exploited and stupid investors are punished and driven out of the marketplace, the market will become more efficient. And that is good for everyone.

[hamster_nz]

From a workmate at work:

My daughter just went to use her voucher and they stopped accepting them at midday today.

So she's now the proud owner of an expensive (but useless) piece of plastic.

[VK3DRB]

...Dick Smith stores have been nothing but a painful reminder of what happens when corporate money vampires get control of a business that once had vision. VK3DRB, I went through the same experience, of working at a place that got taken over by idiot ghouls, who cared for nothing but share price pump & dump. It was horrific. I couldn't quit due to high salary, very close to home, and being in the process of rapidly paying off a mortgage. Took me a couple of excruciating years to get made redundant, and I swore to never work for corporates ever again. (The mortgage was paid off OK.)...

Ditto. I once worked for IBM who sold us off to venture capitalists backed by Mitt Romney's Bain Capital private equity. The new company was called Bluegum Technology. "You either join the new company or be deemed to have resigned from IBM in which case there will be no redundancy (payment)" said then then CEO of IBM Australia. So we joined Bluegum because there was no other electronics work in the town. For my 19 years with IBM, they IBM confiscated $40K of my Superannuation retirement funds. Bluegum closed up shop about 2 years later. I vowed never to work for a big corporate multinational again.

I work for a medical company now in electronics design and coding. But I am working on leaving and going it alone becoming self employed. I have three devices I want to develop, one is an ATE machine I want to commercialise. I built it 6 years ago and it has been used by an electronics manufacturer since then. In between, I can do contracting.