Matt’s great post yesterday on Dick Smith being the greatest private equity heist of all time has been Bristlemouth’s most popular ever. It deserved to be – it was a great piece of forensic accounting and even I was surprised at the scale of it. Turning $100m into $500m in a few years is one thing. Turning $10m to $500m? Now that’s taking the mickey.
I find it quite amusing the lengths the private equity industry goes to to defend itself, though. They even have their own spin association, the Australian Private Equity and Venture Capital Association (AVCAL). At last year’s AVCAL industry awards, Anchorage Capital’ Dick Smith deal picked up the gong for “best management buyout under $75m”. No argument there. It deserves an entry in the hall of fame.
But the lads do seem a bit worried about the impact on their reputation. CHAMP private equity Chairman Bill Ferris told the AFR:
“People think private equity is in there for a three to five-year time frame, to rip and tear, make a quick buck and sell out,” Mr Ferris said.
Yes, that is exactly what we think.
“Which is just crap, because [when] building a better business, you have to think for at least a decade ahead in terms of business modelling. While you can make great improvements in three to five years, you also have to sell to an owner who can also see a three to five-year investment horizon.”
Mmmm, the evidence would seem to suggest something different, Mr Ferris. But I wouldn’t panic too much. Firstly, everyone does it. I mean private equity is pretty good at it. But everyone that floats a business dresses it up to get the best price possible. And the punters have unbelievably short memories. You guys have pulled this off dozens of times and they keep coming back. What makes you think next time will be any different?
Personally, I don’t even feel sorry for the people who lose their money any more. How many times do they have to get whacked on the head before they realise the cheese is a trap? Don’t buy IPOs is a pretty good general rule. And don’t buy private equity ones is a very good specific one.
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9 thoughts on “No Sympathy For Dick Smith Investors”
Really? Most IPOs this year would have yielded excellent returns in the following weeks and even months… This and the previous article is selective thinking and operate under serious confirmation bias.
spotted the private equity worker
The idea that “You don’t get rich from selling a product, you get rich from selling a business” comes from the shonky world of Multi-Level-Marketing/Pyramid schemes.
Welcome to a long term investing blog @h
Dear “h”, Matt’s original analysis and Steve’s viewpoint in this blog post does not appear to be “confirmation bias”. They have merely gone to the trouble of laying out a comprehensive argument. With respect, your argument is flippant bordering on non existent.
Excellent returns to whom ?
I’m one of those punters sucked in by ex used car salesmen parading as
private equity (together with some of my ex returned soldier mates) in investing in Dick Smith
Well fellas enjoy your money earned off the back of your honest hardworking Aussies
PE STINKS !!
Years ago I had a couple of ‘experiences’ with a large organisation’s private equity fund that was actually available to retail investors.
One was that the well respected name that was used to ‘sell’ the fund disappeared without explanation part way through. Another was when an investment was made into something that had nothing to do with private equity. Finally a disproportionately large amount of unitholders funds were subsequently directed into a poorly performing investment that had the fund manager’s parent company as a secured creditor. Not surprisingly they did not want to discuss this.
I suppose I should be thankful that, being an unfamiliar investment type, I had only invested a minimal amount, and that I actually got my money back in the end, though of course I went backwards in real terms. Probably some good lessons learnt at a minimal cost. Interestingly, the organisation still has quite a good reputation, despite (or maybe because of!) their ability to pass on poor performing funds to other mangers.
There’s a duality to IPO investing that makes it interesting. On the one hand, IPOs are generally sales of tarted-up companies by informed insiders to relatively uninformed outsiders. The insiders set the price, and most importantly, the timing.
On the other hand, an IPO represents a massive one time oversupply of stock that needs to be cleared, no different to the sale of a glut of physical inventory. This means that if the above conditions aren’t present, then the IPO can represent a great bargain opportunity.
Combine this with the incentives of investment bankers to underprice their IPOs in order to use stock allocations as a reward for loyal customers and it’s easy to see why there are plenty of IPOs (QR National, CSL, Flight Centre, Medibank, T3, CBA, etc.) that never again really trade at their offering price once they are listed.
Thanks guys, Interesting perspectives & issue re DSE is most troubling as it does appear openly deceitful, thought the days of Rothwells, Vital Tech etc were behind us 🙁
How can anyone accept this as fairness and not interpret as fraudulent intent to deceive, especially so the accounting procedure is so well organised for that aim with many misled as if a criminal deceit, wouldn’t ASIC have a position on this ?
I wonder how the current round of so-called reverse takeovers/backdoor listings such as NRR, AWO, AWD etc could pan out – it certainly doesnt inspire confidence in being involved with developing technology – though of course DSE as a tech retailer wasnt in that sphere – comparatively interested how Hazer will go and so far not clear re their means of listing. Just thinking out loud, not canvassing for opinions all of them though I confirm they are on Hold…