Online-only retailer Kogan has purchased Dick Smith’s online retail business for an undisclosed sum, three weeks after Dick Smith announced the closure of its stores.
Kogan will operate the online business from June 1, 2016 after a transition period.
In February, Dick Smith said it would shut 363 stores across Australia and New Zealand after its receivers Ferrier Hodgson were unable to find a suitable buyer for the company.
“I remember as a kid always visiting Dick Smith to look for parts to upgrade my computer,” founder and chief executive Ruslan Kogan said in a statement.
“There is a strong history of passion in the Dick Smith community for how technology can improve our lives.”
James Stewart, one of Dick Smith’s receivers, said multiple bidders were involved in a thorough process.
“We are particularly pleased that the Dick Smith brand will continue under [Kogan’s] stewardship,” he said.
Existing Dick Smith customers will have their personal details disclosed to Kogan unless they request that information be removed by March 22, 2016.
The recent history of Dick Smith has been nothing short of farce and tragedy. Woolworths, who bought the business from its high-profile founder, Dick Smith, in 1982, ran into problems with the company.
Woolworths sold it to private equity group Anchorage Capital for $20 million and a small exposure to any future float.
The name of the game in private equity is using restructures to on-sell businesses quickly and Anchorage certainly did that.
One of its secrets was Anchorage’s use of Dick Smith’s cash flow to pay for its purchase and create unrepeatable profits.
Matt Ryan, analyst with Forager Funds Management, describes the deal as “the greatest private equity heist of all time”.
He told The New Daily “they bought it for $20 million and sold it (into a share market float) for $520 million”.
The strategy worked like this – Anchorage wrote down the value of old Dick Smith stock which they didn’t replace. They sold the stock off at a discount and that gave them a boost in cash flows of $120 million.
Because they had written down the value of the old stock, they didn’t have to report a loss on the discount sales when they reported their profit.
That in turn meant they could float the company on a multiple of earnings that were boosted by the one-off sales boost.
Despite the inflated values in the float, Forager Funds researcher Matt Ryan said “I didn’t think their demise would be so sudden”.
Founder Dick Smith has called for regulators to examine the private equity deal.
It appears the banks have taken advantage of timing in calling in the receivers in early January.
Dick Smith’s coffers were boosted by Christmas sales but it would not have paid its suppliers by the time the shutters went down.
That means the banks, whose loans rank before suppliers in the repayment order, have ensured there’s plenty of cash to pay them back.
Suppliers, who are owed $250 million, may get returns of only 40c in the dollar, Mr Ryan said.
– with reporting by Rod Myer