Yeah - that could easily be why guidance has been reduced. You...

Yeah - that could easily be why guidance has been reduced. You would suspect that XIP may have been taken for a ride with GH, and paid well over the odds.

However if you think about it from a different perspective, there is only so far ahead that they could pull business. You have to win the business and then do all of the processing. It may be that there is only one very weak half. There could also be some super impressed clients if the work was done much faster than expected as well.

However re work being pulled forward, you can see the GH balance sheet items acquired on the 2nd feb (in the FY notes), and you might roughly assume it was similar on the 31st Dec, or even identical. So the receivables and WIP at the HY adding GH would have been about 26.4 + 4.1k=30.5. At the FY R and WIP was 29 +2.2 = 31.2, which is very similar. The exact opposite of what the article suggested is possible. Instead of GH management creating a hump of work, they may have spent less on marketing and promotion if they were window dressing in the Dec half and earlier, to present better profitability (not saying that they did so, but XIP paid a high EBITDA multiple, implying that XIP perceived a superior ROA and ROE in GH, and it is easier to reduce costs to quickly boost profitability, than to increase sales). Even some promotional staff may have been moved to do some processing instead of sales while shepherding existing prospects through. So another possibility is that the promotional activity is the weak link, and may need to ramp up again, and the return metrics may never be what was expected.

Maybe somebody else can read this better than I can from what is provided.

Another thing is that there could be a downturn in the work that GH excel at, and that is all there is to it. Look at how QIP is going, and IPH til recently.

Anyway - it is history that XIP have overpaid for GH, and a lot has been factored in. The market will need a while before they decide if XIP has what it takes to gain market support for making acquisitions again, and so they have lost the roll up multiple. Even so, there is still significant value there, and it would be taking things a bit too far to assume that GH is a damaged business now, based on a short term forward view of earnings. We can't know how quickly they will get out of rehab. They will still have some great grey hair and some niches that they can exploit I expect, and as long as no clients have been burned, they will probably remain loyal to good service providers they already have a business relationship with.