Private equity firm buys Dick Smith Electronics


news Retail giant Woolworths this morning revealed it had sold its Dick Smith Electronics chain to local private equity firm Anchorage Capital, in a move which may help rejuvenate the ailing business and provide a certain degree of employment certainty for its 4,500 staff around the nation.

Woolworths announced its intention to sell Dick Smith in January, following a strategic review of its broader assets finished in November 2011. At the time it also said it planned to close up to 100 Dick Smith stores in the succeeding two years.

“Woolworths Limited (Woolworths) today announced that it has signed a share sale agreement with Australian private equity firm Anchorage Capital Partners (Anchorage) for the divestment of Dick Smith Electronics (Dick Smith). The transaction is expected to complete in late 2012 following satisfaction of customary conditions,” Woolworths said in a media release issued this morning.

“CEO Grant O’Brien announced in January 2012 Woolworths’ intention to exit the Dick Smith business through a restructure and divestment process. The sale of Dick Smith follows a detailed strategic review and restructure of the business which determined that the business was non‐core in the size and context of the broader Woolworths retail platform and focus on maximising shareholder value.”

Under the deal, Anchorage will purchase 100 per cent of the business, including 325 stores employing more than 4,500 people. The initial cost of the deal will be $20 million, with Woolworths noting additionally that it would “potentially” benefit from a future sale of Dick Smith by Anchorage. Private equity firms typically take on businesses which they believe can be significantly rejuvenated through an injection of capital and new management talent – but they usually onsell the businesses after several years – seeing them as medium-term investments rather than permanent investment opportunities.

“Woolworths will now work closely with Anchorage and the Dick Smith team to commence a smooth transition to new ownership and separation from Woolworths,” Woolworths said. “Under new ownership Dick Smith will continue to trade as one of Australia’s most iconic specialty consumer electronic brands.”

In its own statement this morning, Anchorage said the transaction had been “conservatively structured” so that Dick Smith would emerge from the sale with a “strong balance sheet”, “considerable asset backing” and no core debt, with Anchorage also to support the business through additional cash investment and guarantees. Anchorage said it intended to maintain the current network of 325 Dick Smith stores in Australia and New Zealand and “to consider selective network expansion over time where appropriate”.

Phillip Cave, chairman of Anchorage said: “Anchorage is impressed with the underlying quality of the business and sees Dick Smith as an ideal fit for our investment mandate of acquiring established businesses with strong brands that can benefit from Anchorage’s proprietary approach to operational performance improvement. We’re extremely pleased to have entered into the agreement with Woolworths and are confident in the long term success of the business.”

Anchorage has appointed Nick Abboud as Chief Executive Officer, effective upon completion of the acquisition. Abboud has previously been executive general manager of operations at Myer, which went through a similar private equity buyout process several years ago. The Dick Smith Board will comprise Phillip Cave as Chairman and Michael Briggs, a Partner at Anchorage, together with Nick Abboud and Bill Wavish, formerly executive Chairman of Myer, Finance Director of Woolworths and Supermarkets Director of Woolworths.

Commenting on his appointment, Abboud said: “I am delighted to be joining this iconic Australian retailer. Dick Smith is a well regarded brand supported by an experienced team and an excellent national footprint. Anchorage and I see great potential in the Dick Smith business and I look forward to working with the team to fully realise these opportunities.”

It’s fascinating seeing a private equity firm take a look at Dick Smith this way, and no doubt Anchorage views the retail chain as virtually a guaranteed medium-term investment, given that it was able to pick up the company for a song – a mere $20 million (Dick Smith’s last reported annual sales were $1.6 billion), plus what looks like some form of commitment that Woolworths would benefit from any eventual sale of the company.

So, as somewhat of an expert commentator on the consumer and small business electronics sector, what directions would I recommend Anchorage take Dick Smith in, to save this basket case of a business?

My first observation is that Dick Smith sells a bunch of worthless crap. When I walk into Dick Smith in my home suburb, I’m immediately confronted by cheap dedicated digital cameras (which nobody buys any more), printers (which nobody buys any more) and external hard drive storage units (which few people buy). What Dick Smith needs to start doing is re-modelling its stores more along the lines of JB Hi-Fi – because that’s where most people in my generation are buying their gear these days.

Put brands such as Apple, Samsung, HTC, Sony PlayStation, Microsoft XBOX and Nintendo front and centre in the store and entice people in. Expand the video game section, and start competing more with EBGames. You only go to EBGames to buy video games, but if people start walking into Dick Smith to buy video games at a decent price, they’ll start buying other things as well while they’re there.

Fundamentally, Dick Smith needs to realise that it’s not an electronics store any more – it’s a gadgets and entertainment store, and gadgets are lifestyle accessories in Australia in 2012. The company needs to start promoting the hell out of things people want to buy.

Secondly, I would focus a great deal on building Dick Smith’s online business. Try and get as many people to order products through the website as possible. This is something Dick Smith currently does better than major rivals like JB Hi-Fi and Harvey Norman. There’s a chance for Dick Smith to become something like the Amazon of Australia right now when it comes to consumer electronics. The company’s website needs an overhaul to become more personalised, but if Anchorage can do this and also get great same day or next day delivery on ordered products going, it could steal a march on the sector here. It’s the way things are going eventually, so Dick Smith might as well be the first to do it.

Woolworths has a pretty streamlined operation, and barely anyone actually works in Dick Smith stores, so I doubt there’s a lot of costs to be taken out of the business. But I guess Anchorage could try. Any other suggestions?

Image credit: Jo Fothergill, Creative Commons


    • My printer is 10 years old and still does its job. And it wasn’t an expensive model either: just a standard mono laser printer. I bought it to print out uni assignments, but since I only print a few dozen sheets a year I’ve only gone through a handful of toners.

  1. I bought a cheap dedicated digital camera from Dick Smith for my partner just a couple of months ago because I got sick of her borrowing my Smartphone to take photos. :P

    • As an aside – Renai, do you have any examples of where a private equity firm has gotten involved in a tech retail business and made improvements?

      I’ve been burned before by groups like this (not Anchorage!) getting involved in educational institutions, there can be a bit of a tendency to “cut and burn”, especially when you’ve bought in cheaply. While it makes more sense longer term to sustain and improve the Dick Smith business, can you see them adopting a shorter term “take profits while they last, then gut the business” approach?

      • I’m not a business person but whenever I hear ‘private equity buyer’ I think of the old ‘bottom of the harbour scheme’ from the 70s (or was it the 80s ?) where a company was bought then assets were stripped which caused the company to go into bankruptcy.

        Perhaps what’s happening to CH9 at the moment is an example?

  2. The main thing that I think Dick Smith needs to do is train their staff so that they know the product they are selling. I have had some weird advice from some of their staff on occasions.

    While I can appreciate the commercial expediency of getting away from the electronics side of the business I am a bit sad that I can’t just nip down the street and pick up a length of cable or plug that I need to do a quick repair job at home. Then again I still find my printer useful for somethings so might be getting past it.

    • I’ve found (strangely enough) that *Bunnings* of all places is excellent for that sort of thing. Well priced, cables/connectors/plugs of all sorts.

    • “While I can appreciate the commercial expediency of getting away from the electronics side of the business I am a bit sad that I can’t just nip down the street and pick up a length of cable or plug that I need to do a quick repair job at home.”

      Give Jaycar a try if there’s one near you. They have ridiculous amounts of everything I used to go to Dick Smith for.

  3. I am not sure what they can do with Dick Smith. The stores are a long way from their roots as an enthusiast electronics store. At some point it seems they tried to become Harvey Norman in some sort of half arsed fashion. What they sell now is just a small collection of crap.
    Where they come from has had it’s nitch filled by stores such as Jaycar. A Dick Smith store is really pretty small compared to something like a HN. Maybe rather than trying to sell everything they specialise more and reduce themselves to doing one thing very well. As to what, I have no idea. Whatever they are doing now on a small scale everyone else is already doing better.

  4. $61,538 per store is pretty amazing. With such a low acquisition cost just about anything they do is going to give them an upside when they sell it. Then again retail might completely implode between then and now so who knows :)

    • I assume when they aquire the business though it comes with a lot of liabilities. Just the employee entitlements, holidays, long service leave, etc, can be massive. Let’s hope for the employee’s sake they can do something with them. Being bought out may not be in their best interests. If they close down the stores under Woolworths they have a large company their that pay out those entitlements plus redundancy, etc. If this firm that bought them can’t make it work they are unlikely to have to money to pay out those entitlements.

  5. I miss the old store chain, Where you could build exciting kits to do with computers or ham radio and where you could get everything you needed to make your own projects, They also used to be the sole Yaesu dealer in Australia, Don’t know what happened there?
    But when Woolworths took over they changed it into just another home electrical (small W).
    I guess there is always Altronics!

  6. I agree that Dick Smith stores seem to be suffering an identitiy crisis.
    They dont know if they are a Harvery-Norman style store. They don’t know if they are a Jaycar. They don’t know if they are a toy shop. They don’t know if they are a Crazy John’s. They don’t know if they are a computer shop.
    This generally means that they have a poor selection of anything, and that the prices are not very good either.
    “Dick Smith” as a brand is extremely recognisable, the problem is that it is hard to bring to mind exactly what is stands for these days. When I have a need, whether it is for a phone, a television, a computer, or a length of cabling – Dick Smith simply doesn’t come to my mind.
    A strong online store would be a great idea, although I think that they need to re-establish what the Dick Smith brand even means anymore.

  7. I am so old that when I was a kid ? – I used to shop at THE first Dick Smith store in Richmond (Abbotsford?), that Dick Smith used to run.

    I used to buy electronic bits and pieces and kits and all that.

    As technology changed from electrical gear having hand installed components, to prefab circuits, and then onto all surface mount – non replaceable // disposable gear, then the home repair / creation enthusiast / kit builder market slowly went with it.

    Thus Dick Smith Electronics – at whatever the sale time to Woolworths came and went, and the people who manage Woolworths, decided to dump the electronic parts and spares and kits, and turned it into a white goods store – with a little area with the resistors, LED’s and a FEW other things off in the far back corner.

    And now…..

    The only people into electronics are people who know how to fix up their stereos from the 70’s and 80’s and who can repair or make things – they stopped shopping at Woolw.. I mean Dick Smiths ages ago.

    Don’t much care any more.

    Corporations – and the people running them, have that effect.

    • Back in the day I spent all my pocket money at Dick Smith’s, buying the Funway Into Electronics kits and other components, playing with electronics, etc. But now everything has moved on and will probably just be in software now!

  8. I agree, DSE has lost its way and it’s not in any way competitive either.
    I see stickers on video games still at $99 that are at least 1 year old and there is very little stock.
    JB on the other hand discounts old games, sells their new games for $79.

    Limited range, out pricing the competitors and generally it isn’t all that enjoyable to shop there.

  9. Dick Smith lost me as a customer when they started selling expensive crap and left the “real” electronics market to Jaycar!

    they also killed off Tandy Electronics and that annoyed me too. :-(

    • +1

      Dick Smith started going downhill when they moved away from the Electronics market. I don’t see Jaycar going out of business any time soon…

    • I went to the one in Perth city only last week, tried to sell me an 8gb micro sd card for $48
      went to office works and bought the Ultra 8gb version for $16.

  10. For those worried about a ‘cut and burn’ strategy being imposed on Dick Smith once the sale is completed, well I can assure you this is what is needed. Woolworths is a traditional retail player and will use profits from one part of their business to prop up parts that are suffering or bleeding cash. Traditional retail players are known to sit around for a few years waiting for improvement despite all the warnign signs. Myer is a good example of that at the moment with it also being potentially up for sale with massive sotere closures. Private Equity groups are substantially different and take a more hardline approach to see that their investment pays off. Of course they are going to cull staff and cut costs to bring the business back to a sustainable point. You can’t expect someone to buy something and not have the right to make changes to realise a profit from their investment. Business is not charity and Private Equity generally represents hardline capitalism and you cant blame them for what they do …. it’s all about performance and profit, which I might add is essential in running any business regardless of the size. Add to that, under the Australian Corporations Act, a corporation (Company) must act in the best interests of its shareholders…. there is no reference in the Act to incubating failing and/or unprofitable and underperforming businesses.

    I think you will find Anchorage will end up shutting down the majority of the stores if they are unable to be restructured and doing an online only pitch. Alternatively, you may find a drastic change in their retail strategy and them reposition to a JB HiFi style operation with greater focus on bare concrete and timber floors and low costs store fit outs, and again a big push into online.

    AU$20M for the brand alone is a good deal. It would be interesting to see what the true debt liabilities are and how deep the rabbit hole goes, but I truly believe that the business can be effectively rebuilt as long as those inserted into it have the balls to make the tough decisions and implement a solid strategy while putting up with the criticism of the remain staff, soon to be ex staff, the general public and no doubt if job losses are incurred, unions and a Federal Government intent on destroying those in this country with the balls to get off their backsides and build a business.

    Just remember that private equity money is the backbone to our economy and society in general , for both listed and unlisted companies. Without private equity many businesses would fail without a second, third or fourth chance and many more people would be out of work. Without private equity, we would not have many of our motorways, airports, airlines, retail players, technology firms etc. Private equity investment is good despite what some may think


    • Im not sure why anyone would be worried, this mob is likely to have a pretty aggressive resurrection strategy already to go otherwise they wouldnt have wasted their money on DS.

      Im personally very interested to see what they do – if they stop DS stores from being peddlers of over priced yum-cha brands, overpriced console games etc and pursue an aggressive online strategy then DS could have a very bright future.

      Even if they fail I dont think that many folk will care, as anyone with fond memories of DS (and Tandy Electronics before it was borgified!) will have already taken their business to Jaycar Electronics.

    • PS, have you seen what DS charge for HDMI & Network cables!!! They make HN almost look good value!!!!

  11. I agree entirely with the comments from Jose re the importance of Private Equity players in the market. I agree to a point with just_a_bloke who seems to be a Jaycar electronics advocate as I was until recently when I realised that the staff there (becoming increasingly aware that they are maybe the last bastion for all those little specialist parts that we all crave to complete our precious projects) can be (generally – NOT ALL) opinionated, rude, sloppy, smarty pants individuals.

    I am approaching now my senior years and I have a few Degrees; all of which I worked hard for over many years, albeit none of them (yet) are in electronics. However, unlike the management of the much revered and seemingly ONLY retail outlet for “bits and pieces” who apparenmtly can only source their staff form the GEN Y genetic stocks, I am not dumb and don’t appreciate being treated this way.

    Jaycar will in my opinion (unfortunatley) fail because the management has no control over the imposters they employ at the coalface.

    I now do all my business offshore via ebay at a fraction of the cost of AUS retail and as a Certified Property Valuer this goes against my very grain because I know this further contributes to the demise of the Australian Retail Property market now in it’s most significant downturn in 20 (TWENTY) years, but I am smart enough to know when I am throwing money down the toilet.

    I ask you all one Question only; where can I spend my money with an Australian Electronics retailer that will give me value for money, good advice, no smart ar&e kids and the desire to form a long term buyer/seller relationship with me?

    If that question can’t be answered then (IMHO) the Jaycars of the current world will go the way of their predescesors and everyone will do online trade with the US, China and Hong Kong.

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