The death of an iconic brand like Dick Smith was always going to be something that many Australians feel personally. So it’s only a very small step to the natural question of who is to blame.
It’s easy, as Dick Smith, the company founder himself, has done, to blame the private equity firm, Anchorage Capital, which bought Dick Smith off Woolworths and made around $500 million in the two years it held the company before its refloat.
Smith told The Australian that it was the greed of the private equity crowd that sank the company he sold to Woolworths back in 1982 for $25 million.
“It seems to me to be absolute greed; these companies seem to want perpetual growth. These people who buy shares think there’s a constant growth in profits, but there’s not,” Smith said.
“I am incredibly disappointed this latest acquisition by Anchorage could do so much damage to this business,” he added.
Smith’s comments echo the views of Australian based Forager Funds management which said in a blog post back in October 2015 that “Dick Smith is the greatest private equity heist of all time”.
But as convenient as it is to blame the private equity guys, Tony Boyd, writing in the AFR’s Chanticleer column this morning, says that’s too simplistic an approach.
Boyd writes that:
Chanticleer has observed lots of people allowing the bile to rise to the back of their throats before screaming about the evil, unethical and immoral private equity managers.
The same private equity haters would like you to think that the men and women behind Anchorage Capital Partners, who include former Macquarie Bank CEO and new Reserve Bank board member Alan Moss, have no useful role to play in Australia’s capital markets.
That is patently ridiculous. It ignores the fact that most of the most successful initial public offerings in Australia over the past three years were brought to the market by private equity.
He highlights that Dick Smith relisted in September 2014 and Anchorage Capital “severed its director links with Dick Smith 10 months ago”. To blame Anchorage, Boyd says, “requires an extraordinarily convoluted conspiracy theory to support the argument”.
Rather, Boyd says there is a simple explanation for the demise of Dick Smith. That is “management and the board totally misread the market”.
He says they used the firm’s capital to “load up with millions of dollars of stock that no-one wants to buy”.
Dick Smith might be an icon but those throwing the brickbats should ask themselves when was the last time you went into and purchased from one of the stores as opposed to JB Hi Fi, Harvey Norman, or an online purchase such Kogan or Amazon.
There is plenty of blame to go around in Dick Smith’s demise. We’ll get the receiver, McGarthNicol’s report in due course.
But it’s clear blaming private equity for all the companies woes is convenient but a little too simplistic.