News: UPDATE 2-Australian electronics collapse highlights risks of PE turnarounds

• Company in administration 2 yrs after IPO
• PE owner paid A$100 mln in 2011, sold for A$520 mln in 2013
• Rapid expansion plan questioned

(Recasts, adds investor, analyst comment)

The collapse of Australia's biggest electronics retailer on Tuesday, just two years after listing, has sparked a fresh round of criticism about the swift and often mysterious methods that private equity firms use to prime their investments for sale.

The demise of Dick Smith Electronics Ltd (DSH) is part of a broader pattern: buyout firms cutting the time they spend turning their investments around and leaving the newly public companies poorly placed to weather turbulence.

Australia's biggest department store chain, Myer Holdings Ltd (MYR), cleaner-caterer Spotless Group Holdings Ltd (SPO) and top-rating television broadcaster Nine Entertainment Co Holdings Ltd (NEC) have all seen their shares slump below their issue price following quick private equity sales in recent years.

Each has suffered weaker-than-forecast sales thanks to sector-specific headwinds, with Dick Smith and Myer facing competition from online retail, Spotless grappling with a mining downturn and reduced services spending, and Nine saddled with an exodus from free-to-air television to the internet.

"Everyone's got to shoulder a bit of responsibility," said Matt Haupt, a portfolio manager at Wilson Asset Management, referring to the private equity firm which sold Dick Smith, Anchorage Capital Partners, the company's management and the investment banks which managed its float.

"This one was really dressed up. Most of the private equity deals have worked but this one was terrible."

Anchorage, whose managing director Philip Cave was also Dick Smith's chairman until February 2015, declined comment.

The investment banks which helped Anchorage sell Dick Smith, Macquarie Group Ltd (MQG) and Goldman Sachs, also declined comment. Macquarie is Dick Smith's biggest shareholder with 19.5 percent, worth A$16 million ($11.5 million) when the stock last traded, down from A$104 million in May.

In a statement, Dick Smith said its directors were "confident on the long-term viability of the company (but) have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period".

PAINFUL LESSONS For most of its life as a listed company, Dick Smith impressed investors with its strategy of rapidly adding stores - in fiscal 2014 it added 54, growing its presence by a sixth - and riding a wave of demand for smart phones, tablets and flatscreen TVs.

Then in October and November 2015 it issued two profit warnings, sending its shares plummeting. It slashed retail prices in the busy Christmas period before suspending its shares from trading on Monday.

By Tuesday, it had called in administrators. The shares last traded on Friday at 35.5 Australian cents, compared with their A$2.20 issue price.

Until then, few had questioned how Anchorage sold the retailer in 2013 with a market capitalisation of A$520 million, having bought it from supermarket giant Woolworths Ltd (WOW) for less than A$100 million 15 months earlier.

One person who did was Matt Ryan, an analyst at Forager Funds Management, who wrote in a September 2013 blog, three months before the Dick Smith listing, that Anchorage "can't have done much to turn around the business; they’ll have barely met their management team".

He added that "either Woolworths should be embarrassed at selling Dick Smith for an absolute pittance or investors are about to find they have purchased a dressed-up lemon".

On Tuesday, Ryan declined to blame Anchorage for making a profit.

"I would hope investors learn something from this. The onus is on us to turn down these floats," he told Reuters in a telephone interview.

Australian Shareholders' Association company monitor Alan Goldin also declined to blame the vendor.

"I can't believe anybody brings a company to market because of the goodness of their heart," he said.

($1 = 1.3881 Australian dollars)