Slater and Gordon failed because they performed an acquisition that was too large, and the timing was unfortunate, as the acquired company was unable to pay for itself. One poor (major) decision can bring down a company that previously had very strong financials. It will also be interesting to see how IOOF go with their latest acquisition too, as this was pretty big. VOC is another example of acquisition gone wrong, they'll probably pull through though.
Slater & Gordon was a different case from Retail Food Group. The market is starting to price failure into RFG. RFG is about high rent (driven by high property prices, low-interest rates etc), franchise fees and poor publicity. Poor publicity can be overcome in time, and there may be a natural break in the onslaught when media attention shifts over to the banking inquiry. There may be some scrutiny over franchise fees, something may be done here, but if the fees are indeed industry average well then perhaps change isn't warranted and greater due diligence on business viability is needed. Rising rent; I don't foresee a lot of relief here because property prices are set to continue to increase against wages. However, business confidence is improving too. If rising revenue is a pattern for the future, the rising rent may not be such an issue. At the moment, RFG are running a strong advertising campaign, this is in their control. But you know, with all turnarounds, don't bet your house on it.
RFG Price at posting:
$2.07 Sentiment: None Disclosure: Held
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