The main internal factor for Dick Smith’s collapse was The Role of Private Equity:
Dick Smith’s demise all started when the private equity firm Anchorage Capital purchased Dick Smith Holdings for 115 million AUD from Woolworths but paid just 20 million AUD upfront. The next thing they did was inventory write-down. Dick Smith’s annual report of 2012 indicates that $58 million inventory was written off.
Dick Smith’s assets acquired and liabilities assumed at the date of acquisition:
Accounts Title Book Value 25 November 2012 Fair Value Adjustments Fair Value 26 November 2012
Current Assets
Cash and Cash Equivalents 12.617 - 12,617
Trade and other Receivables 29,151 - 29,151
Inventories
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Because the losses will be in the financial statement and make it difficult to float the business. They succeeded in the plan too. They gave a big sale on every store, built more 10-15 new stores all over the country, took over the David Jones electronic departments and in the year 2013 the inventory of Dick Smith’s dropped down to $171 million from $312 million. They made a tremendous profit from operating cash flow by selling inventories and not restocking them. They made amazing profit of $140 million from which they paid the due of Woolworths. But that’s not it. In the same year they insanely float the business to $520 million in the stock markets. They sold 80% by December 2013 and remaining 20% in the next 10 months. It was all possible because of the fair value adjustments of inventory and selling these inventory within June 2013. As Anchorage had a company with huge sales growth, little inventories and huge profits, their books look tremendous. Therefore, they were able to float the business for $520 million and sold 80% of the company within just 5 months. The share price was $2.20 in December 2013 but surprisingly dropped to 0.2 cents after the sale of all the shares. There is no doubt that the role of the private equity Anchorage Capital is responsible for the decline of Dick Smith. Even the founder of the company Dick Smith blamed the private equity for its’ sudden collapse. And to add on, this