An analysis of how DSH was financed by Anchorage Capital...

An analysis of how DSH was financed by Anchorage Capital Partners (ACP). I stand corrected but hopefully, the analysis to demonstrate how the $115m acquisition was funded, can shed further light.

In summary, the financial structure of DSH was never feasible from the start.  

ACP injected ONLY $10m of risk capital for an acquisition consideration of $115m. The market cap on IPO was $520m. For this to work, it has to draw substantial risk capital from:-

Bank borrowings (NAB and HSBC)
Public investors (you, etc) - (ACP got out for est $400m plus (from a $10m investment) before the yellow stuff hits the fence.)
Trade creditors (Apple, Samsung, Canon, etc)

Unless DSH is an amazingly great business generating superior ROE, a time will come when DSH will breach its bank covenants. SP slides once end-of-the road scenario seems plausible to investors/insiders.


7 sources of funds for $115.2m:-

Cash injection by ACP - $10m

Cash in DSE available upon acquisition (DSE has $12.6m available – Note 15b – pg 32 - 2013 DSSH)

Cash to be paid from IPO proceeds - $24m allocated – Note 15b – p32 – 2013 DSSH) (see also IPO prospectus)

Working capital adjustments to WOW - $21.2m was used (Note 18 – pg 37- 2013 DSSH )

Milking working capital – delaying payment to trade creditors and running down inventory.

Use of credit facility ($26m was drawn down as early as 30.6.2013 possibly from parent co/ACP-related but it is taken up as a debt by DSH  – Section 5, Note 5 pg 60 – IPO prospectus) Post acquisition, It has to rely extensively on bank borrowings to fund its operations - note DSSH has no bank borrowings on 30.6.2013)

Shareholders advances by ACP (It is possible ACP could have advance some short-term funding to DSSH but were all reversed out before 30.6.2013)


How and when the $115.2m consideration was actually paid to WOW.

Initial cash payment - $20m (paid on 26.11.2012)

Working capital adjustments $21.2m (I think this would be the amount due to DSSH from WOW but contra off)

Cash of $50m paid on in Jun 2013.

$24m deferred payment in 12 instalments from July 2013 to Jun 2014. (Note 18 – pg 37 – 2013 DSSH). It was probably renegotiated to a one-off payment of $24m (with interest) upon IPO proceeds.



Background Info

Anchorage DS Pty Ltd was incorporated on 31.8.2012. Name was changed to Dick Smith Sub-Holding (DSSH) on 11.10.2012.

On 26 Nov 2012 DSSH bought DSE Holdings Pty Ltd from Woolworths Pty Ltd (WOW) for $115.2m.  (The original pricing structure include a portion of proceeds from an eventual sale or IPO. It was later re-negotiated to a fixed price of $115.2m (note 18, pg37 – 2013 DSSH))

The paid up capital of DSSH is $10m. $10m was injected on 31.8.2012 by the shareholders of DSSH.
The shareholders of DSSH are Anchorage Capital Partner Trust A (49%), Anchorage Capital Partner Trust B (49%) and individuals (2%). (Note 19 - pg 38 - 2013 DSSH)

The IPO of Dick Smith Holdings Pty Ltd (DSH) was completed and the shares quoted on ASX on 12.12.2013.



The two sources of info of the analysis are from the 2013 financial statements of Dick Smith Sub-Holdings Pty Ltd and the IPO prospectus.

http://hotcopper.com.au/attachments...0/?temp_hash=2f4356fdfc1bcd4262863a96a9d4928d

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