Dick Smith Is the Greatest Private Equity Heist of All Time
There is another story here. Look at the inventory level at the time of sale: $371 million. In that time frame, they had about 1.2-1.3 billion in revenue. That puts their inventory-turnover ratio at around 3.2-3.5. Meanwhile, Best Buy, GameStop, hhgreg, operate at a turnover ratio approaching 5.5, and Amazon is at over 8.[1]<p>So here is my alternative take on this: Woolworth&#x27;s knew that retail consumer electronics is a dead business in the age of Amazon and Apple&#x2F;Microsoft company stores. They knew that the $371 million of inventory was never going to sell at that price. Who wants to buy 6-9 month old consumer electronics? So they sold Dick Smith at a discount to: 1) get out of a dying business area; 2) have someone else take on the onerous task of liquidating whatever value could be extracted from the company.<p>Now, as to the subsequent sale. It&#x27;s not like prospective investors didn&#x27;t see these transactions. It&#x27;s not reasonable to assume that institutional investment professionals couldn&#x27;t have figured out what it takes this blog post a couple of pages to explain. More likely, they were taking on a gamble: here was a leaner, meaner Dicks stripped of baggage that could make profits going forward. They lost that bet, but not because of anything the PE company did.[1] They lost that bet because Dick Smith immediately bloated itself up again with huge amounts of inventory, likely because the company simply wasn&#x27;t structurally capable of operating as leanly as the market now demands.<p>[1] <a href="http:&#x2F;&#x2F;marketrealist.com&#x2F;2015&#x2F;01&#x2F;best-buy-attempts-optimize-inventory-levels" rel="nofollow">http:&#x2F;&#x2F;marketrealist.com&#x2F;2015&#x2F;01&#x2F;best-buy-attempts-optimize-...</a>.<p>[2] This does not appear to be a case where, e.g. the PE company loaded the target up with unsustainable debt.