The private equity playbook for buying a public company:
1. Find company with lots of cash on the books but trading very cheaply
2. Acquire company and use cash on books to fund it
3. Cut costs as deeply as you can and still have a company
4. (Optional) Combine it with anther firm to create "synergy"
5. Spin it back out for a profit
Corel was a company that got eaten and spit out in this fashion by Vector Capital.
It was purchased for about $120 million but it had $90 million of cash on its books, meaning the deal didn't require putting up alot of capital.
After the deal was done, there was a large head count reduction, which for a technical company is the equivalent of a retailing dumping inventory and not restocking it.
It was then merged with WinZip, WinDVD and a few other companies and then spun back out as a new company under the Corel name again.
It turns out that this didn't work so well for Corel and Vector reacquired them in 2009 to try this all again.
I used to work at Dick Smith at the time they still carried the suffix Electronics, from 2003 - 2007. I loved it there, grew up going there and playing with the gadgets and electronics. They're a shell of their former selves now, just a cheap consumer electronics store that tried to compete with other Australian retailers selling house branded and lower-end branded products.
They could probably significantly revitalise by moving back to tools & parts, I doubt many former customers would be loyal now though given how they were treated at the point all the PRZ range was dumped (parts, resistors, capacitors & semiconductors).
3 comments
[ 2.2 ms ] story [ 17.9 ms ] thread1. Find company with lots of cash on the books but trading very cheaply
2. Acquire company and use cash on books to fund it
3. Cut costs as deeply as you can and still have a company
4. (Optional) Combine it with anther firm to create "synergy"
5. Spin it back out for a profit
Corel was a company that got eaten and spit out in this fashion by Vector Capital.
It was purchased for about $120 million but it had $90 million of cash on its books, meaning the deal didn't require putting up alot of capital.
After the deal was done, there was a large head count reduction, which for a technical company is the equivalent of a retailing dumping inventory and not restocking it.
It was then merged with WinZip, WinDVD and a few other companies and then spun back out as a new company under the Corel name again.
It turns out that this didn't work so well for Corel and Vector reacquired them in 2009 to try this all again.
see: http://247wallst.com/banking-finance/2009/10/29/corel-strang...
Net assets of Dick Smith before acquisition were $370MM and that's not even accounting for intangible assets such as value of Dick Smith brand.
Why would Woolworths think selling for $115MM was ever good idea? Who was in charge back then?
They could probably significantly revitalise by moving back to tools & parts, I doubt many former customers would be loyal now though given how they were treated at the point all the PRZ range was dumped (parts, resistors, capacitors & semiconductors).
Be interested to see how this all plays out.