With great capitalisation comes great responsibility: Dick Smith management focused on new shareholders

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As Dick Smith Holdings prepares to transition from private equity ownership to public accountability, management is acutely aware of the responsibility that comes from overseeing a company with retail and institutional investors and an implied market capitalisation of $520 million.

Nick Abboud, who has led the company since Anchorage Capital Partners purchased the then struggling chain from Woolworths, is being retained as the publicly listed company’s inaugural CEO. He said today’s listing was a major achievement.

“Today is a major step in the evolution of our company, one that has been a fixture in the retail community in Australia and New Zealand for decades,” Abboud said.

“We have been greatly encouraged by the institutional and retail shareholder response to the IPO and the strong demand for shares. This has allowed us to assemble a high quality register of institutional shareholders.

“However, we are 100 per cent aware of the responsibility we have to deliver on behalf of our shareholders. They want to see us meet our objectives and to deliver sustainable profit and growth.”

Daniel Broeren, an expert in analysing publicly listed retailers for CIMB, said Dick Smith Holdings may have been undervalued at $2.20 per share, and expressed cautious optimism for the company’s entry on the ASX.

“Given market scepticism around private equity exits, and in particular, the short-term nature of Dick Smith’s turnaround, the IPO pricing appears to have been set at a discount,” he said. “We value Dick Smith Holdings equity at $2.60 per share, above the fixed issue price of $2.20.”

Broeren did temper this optimism with some sobering thoughts on Dick Smith’s New Zealand operations and management’s share holding in the company.

“Significant operational change in recent years has generated sales and earnings volatility. The New Zealand business, in particular, is yet to find stable footing, with unadjusted 1Q14 (July-September 2014) sales down 25.3 per cent. As such, the reliability of prospectus forecasts comes under some question.

“A further uncertainty for investors is that 85 per cent of equity retained by both Anchorage and management will vest in August 2014. This further emphasises the incentive for a near-term earnings outcome.”

Anchorage Capital Partners has retained a 20 per cent interest in Dick Smith Holdings, while current management holds a separate 11.5 per cent share.

Chairman Phil Cave praised Nick Abboud for his work on this IPO, which was joint-managed by Goldman Sachs and Macquarie Capital, and also stressed the importance of sound management.

“Working with Nick has been a great partnership for us,” Cave said. “A tremendous amount of work has gone into driving change and getting Dick Smith to the point that it can become a listed company.

“There is still more to do, of course, and Anchorage is retaining a significant shareholding as a sign of our confidence in the company’s forecast financial performance.”

Dick Smith Holdings successfully raises $344.5 million from IPO
(3 December 2013)

An announcement to the Australian Securities Exchange (ASX) today has confirmed that Dick Smith Holdings has raised $344.5 million by issuing just over 236.5 million shares at $2.20 each.

Dick Smith Holdings (DSH) is expected to commence its public listing at 12 midday on Wednesday 4 December 2013. Michael Potts has been named its inaugural company secretary and the company will maintain a traditional July-to-June financial year.

Dick Smith to list on ASX as Anchorage seeks to raise $344 million
(14 November 2013)

Anchorage Capital Partners has today revealed details of its Initial Public Offering (IPO) of Dick Smith. Anchorage is looking to raise $344 million from this offer, which will go on sale to institutional investors on Thursday 21 November 2013 and to retail investors the following day.

The offer price for shares is $2.20 and there will be 156.6 million shares offered, with Anchorage retaining 47.3 million.  At the conclusion of the IPO, Anchorage will retain a 20 per cent stake in the company, which is expected to list on the ASX as Dick Smith Holdings Limited (DSH) on 4 December 2013.

News that Anchorage was planning to list on the ASX and that Goldman Sachs and Macquarie were handing the IPO were first revealed by Appliance Retailer in September 2013.

Here is Dick Smith managing director and CEO Nick Abboud, via a media release:

Today is a very exciting day for Dick Smith, our team and our customers.

Dick Smith is an iconic and trusted brand in consumer electronics, and management is very excited about the opportunity to list the company and pursue profitable growth on behalf of shareholders. Dick Smith has undergone a significant transformation under the dynamic ownership of Anchorage.

With the transformation initiatives largely implemented, management put in place a comprehensive strategy and plan focusing on key business initiatives which provide a strong platform for growth and the further development of our business.

The IPO provides investors a great opportunity to share in this continued development and what we believe will be future success.

The prospectus for this IPO reveals Dick Smith made a net profit after tax (NPAT) of $6.1 million for first quarter of FY2014, from $273 million in total sales. During its last full year of Woolworths ownership (FY2012), Dick Smith had an NPAT of $13.2 million from $1.37 billion in sales.

Since taking control of Dick Smith from Woolworths in mid-2012, Abboud and the Anchorage team has methodically prepared for this moment, clearing excess stock from Dick Smith stores, re-energising the tired brand and opening new store-in-store concepts in partnership with leading brands, such as Samsung.

When the sale was finally completely, Anchorage had paid $94 million for Dick Smith. While the IPO will have been priced to ensure a profit from this venture for Anchorage Capital Partners, it is worth noting that there has been significant investment in Dick Smith during this period.

In two bold moves for the consumer electronics industry, Anchorage partnered with David Jones to service the department store’s consumer electronics business and opened a new chain of ‘fashtronics’ stores called Move.

The David Jones partnership has given Dick Smith access to a whole new set of premium consumers, not normally associated with the value-based offering Dick Smith has traditionally provided.

The Move concept has been especially groundbreaking. In an era where most retailers are carefully watching store numbers and contracting where necessary, Dick Smith’s decision to start a new retail brand, merging electronics, accessories and fashion is a first for the industry and represents a core diversification of its offering, which provides appeal to potentially cautious investors; those concerned that Dick Smith is a publicly listed entity could be too one-paced.

Considering this scope of this investment and the encouraging public reaction, it is unsurprising that Anchorage is retaining a 20 per cent share in the company.

“Anchorage is retaining a significant shareholding in Dick Smith, reflecting its support for the transformation program and its confidence in the company’s forecast financial performance,” said Dick Smith chairman Phil Cave.

“Nick and his management team have driven a comprehensive program of strategic, customer, operational and cultural initiatives that have already delivered substantial improvement in financial performance and are expected to deliver additional benefits in the coming years.”

In its sales pitch to potential institutional and retail investors, Anchorage lists Dick Smith’s core strengths as an iconic brand in markets skewed towards high margins and growth; a multifaceted approach to retail, incorporating outlets, online, mobile and house brands; and experienced senior management.

In news that may interest Dick Smith’s supplier partners, the company’s private label or home brand strategy has been identified as strong source of expected profit after the public float.

“Dick Smith’s private label products accounted for more than 10 per of pro forma revenue in FY2013 and the Company expects to increase this contribution as part of its growth strategy,” Dick Smith Holdings says in its prospectus.

“Dick Smith’s private label products are typically higher margin than third party branded products, and as such represent both a revenue growth and margin expansion opportunity.”

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