Australian senate committee to investigate Dick Smith demise
An Australian parliamentary committee will launch an inquiry into the collapse of listed domestic retailers following the demise of Dick Smith Electronics, which was previously owned by Anchorage Capital Partners.
The senate referred the inquiry to the Senate Economics and References Committee, which is due to report back by May 12. The committee will decide who to call for questioning, but Nick Xenophon, one of the senators who called for an inquiry, told the Sydney Morning Herald that he expected Anchorage to appear.
Having bought Dick Smith from Woolworths in 2012 for A$20 million ($14 million), plus a share of any upside resulting from an exit, Anchorage took Dick Smith public in late 2013. Just over a year after the PE firm sold the last of its shares, having generated estimated total proceeds of A$450 million, Dick Smith entered receivership.
Accusations that Anchorage dressed up the business for the IPO at the expense of long-term sustainability were strongly denied by Phil Cave, the PE firm's managing partner, last month. He noted that all the stores were profitable when Anchorage exited and questioned the board's decision to write down stock. That, plus a downgrade in projected profit and weak Christmas sales, led banks to pull support for the company.
The speed of the move from distressed asset to a valuation on listing of A$520.3 million to receivership has drawn scrutiny of Anchorage and the private equity industry as a whole. However, the Australian Private Equity and Venture Capital Association (AVCAL) said the inquiry represents an opportunity for people to better under understand the role private equity plays in the country's economy.
"Some of the best performing businesses in Australia - many of which are listed - have benefited from private equity investment. This fact is supported by data that confirms private equity-backed initial public offerings have comprised eight of the top 10 post-IPO performers since 2013," said Yasser El-Ansary, CEO of AVCAL, in a statement. The statistic is based on offerings of A$100 million or more.
"AVCAL will be putting forward a compelling base of evidence supporting the significant value our industry delivers to the economy, as well as the millions of Australian superannuation fund members across the community who benefit from a strong and well-functioning private equity industry," he noted.
El-Ansary added that a 2007 senate inquiry on PE investment in Australia recognized the role played by the industry in improving the efficiency of businesses and the capital markets.
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