Australian Senate to scrutinise PE corporate takeovers role

The Australian Senate has launched an inquiry in response to the collapse of well-known electronics retailer Dick Smith, previously owned by Anchorage Capital Partners.

The Australian Senate Economics References Committee will scrutinise the conduct of private equity firms before, during and after corporate takeovers as part of an overall inquiry into the causes and consequences of the collapse of listed retailers in Australia.

The inquiry is a response to the demise of well-known electronics retailer Dick Smith Holdings (DSH) that entered into administration in January. The company was owned by Anchorage Capital Partners prior to its initial public offering in 2013 and the firm has come under intense public criticism in the debate surrounding the company’s collapse, as previously reported by Private Equity International.

The Senate voted on 4 February to support a motion brought by Senator Nick Xenophon for an inquiry. Individuals and institutions can submit opinions and proposals to the committee, which is due to report on 12 May.

“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,” Australian Private Equity and Venture Capital Association (AVCAL) chief executive Yasser El-Ansary said in a statement.

The inquiry is “a unique opportunity for the community to better understand the important role that private equity plays within our economy,” AVCAL said in a statement.

The industry association said in an email to members that it had already been “working closely” with Anchorage Capital and other members “on the key issues arising from the recent events surrounding DSH and the forthcoming Senate inquiry” and had also held discussions with members of parliament.

Within the scope of the inquiry is scrutiny of the role of the Australian Securities and Investments Commission and the Competition and Consumer Commission on overseeing corporate takeovers, as well as the effect of the appointment of external administrators on secured and unsecured creditors, including employees and consumers, and encompassing those holding gift cards.

Anchorage Capital bought the company from supermarket chain Woolworths for A$94 million ($67 million; €59 million) in 2012 and exited through a A$520 million IPO sixteen months later on the Australian Stock Exchange. The company suffered a profit downgrade in October and a A$60 million share writedown, as well as a clearance sale.

It is not the first Senate inquiry to shine a spotlight on the private equity industry. In 2007 a Senate probe into private equity encompassed the role of the industry and the capital markets, tax and revenue implications, and the adequacy of existing regulations.

The Senate Standing Committee on Economics concluded in its final report that there was no case for further regulation. The report’s final paragraph noted that private equity was “an opportunity to reinvigorate underperforming public companies, which will subsequently benefit Australian consumers, shareholders and workers.”