Anchorage Capital could face Australian senate grilling

In the public outcry following the collapse of electronics retailer Dick Smith, its previous private equity owner faces demands to explain what went wrong.

Australian private equity firm Anchorage Capital Partners could face an Australian senate inquiry over the collapse of former portfolio company electronics retailer Dick Smith.

Independent South Australian senator Nick Xenophon has written to the Senate Economics Reference Committee demanding that both Anchorage and the regulator, the Australian Securities and Investments Commission, explain why the company has collapsed.

Xenophon tweeted on 5 January: “Corporate watchdog ASIC must explain how a great Australian company like Dick Smith was able to go into receivership. Employees deserve to have a secure future and consumers must not be left in the lurch. I'm pushing for a Senate Inquiry into the collapse with a view to calling ASIC and directors of Anchorage Capital Partners which floated the company in 2013.”

Anchorage bought Dick Smith Electronics from supermarket chain Woolworths for A$94 million in 2012 and exited through an A$520 million ($364 million; €335 million) initial public offering in 2013 on the Australian Stock Exchange.

Anchorage retained a 20 percent stake which was subsequently sold down in a block trade in September 2014. Nine months after the company launched an IPO, Anchorage has made an estimated 4x return on its final stake in Dick Smith.

The company's financial troubles came to light when its shares fell almost 60 percent in November. The company revealed that its stock was worth $60 million less than expected, with profits also forecast to fall short of Dick Smith's $48 million target, reports said. To add to that, sales plummeted in December even as the company embarked on a massive sale.

This week, shares in Dick Smith Holdings ceased trading. The company has been placed into receivership and lenders National Australia Bank and HSBC Australia have brought in Ferrier Hodgson to claw bank debt owed to the banks.

Founded in 1968 by Richard “Dick” Smith, the company began in 1968 as a car radio installation business in Sydney. It has grown to become an electronics retail giant and currently employs over 3,300 people across 393 stores in Australia and New Zealand.

Smith sold the business to Woolworths in 1982, according to reports. However, its former owner has been vocal in his criticism of Anchorage and told news.co.au: “The company could not possibly afford to be that indebted, or have that value on the market.”

Anchorage, which manages two funds and has a total of A$450 million funds under management. It acquired Australian listed childcare centre Affinity Education Group in December beating out competition from strategic buyer G8 Education, as reported by Private Equity International .