Retail’s hard revaluation

Back in 2005 when I was stationed in Brisbane working for BRW, I got a tip on a new rich list member who I was told could well be in the big league – the billionaires’ club.

It was an exciting prospect. At that time, with the mining boom only starting to get into full swing, the Sunshine State still didn’t have a billionaire and I was eager to try and get one onto the list.

The man in question was a Dutch immigrant named John Van Lieshout, an incredibly private entrepreneur who had built the furniture chain Super A-Mart into one of Queensland’s most iconic retailers.

We got no co-operation from Van Lieshout, but we were able to prove the case – Van Lieshout went into the 2006 Rich 200 as Queensland’s first billionaire.

Six months later, our valuation of Van Lieshout was confirmed when the billionaire sold Super A-Marty to private equity firm Ironbridge Capital for $478 million. But the canny entrepreneur only sold the retail operating business – he kept the extensive property portfolio underlying the stores and warehouses, a portfolio worth around $500 million.

Van Lieshout wasn’t keen on being put on the Rich 200, but once he was there he did start to open up. He was a lovely bloke who had clearly loved building his business, but in the end, he just couldn’t say no to the Ironbridge offer.

He’d run the business as leanly as humanly possible, so he knew there wasn’t some huge amount of profit growth to be extracted by a new owner. The $478 million on offer was simply too good to refuse.

Van Lieshout was right – that was as good as it was going to get.

Six years on, Ironbridge is shopping Super A-Mart around in combination with another retail business it owns, the BBQ retailer Barbeques Galore. Combined, the two businesses are expected to fetch between $400-500 million.

Barbeques Galore was acquired for $88 million in 2005, so Ironbirdge is facing the prospect it will get substantially less than it outlaid for the two businesses, excepting the fact it would have taken dividends out of the business in the intervening years.

Clearly Super A-Mart has lost substantial value since its acquisition, given Ironbridge has aggressively expanded the business outside Queensland and Northern NSW into Victoria, South Australia and Western Australia.

It’s a great illustration of the value that has been eroded in the retail sector since the pre-GFC boom years, when cheap credit and interest-free deals helped chains like Super A-Mart become extremely profitable.

Obviously, economic conditions are much different now: But so too is the penalty rate regime, the Australian dollar and the level of competition from online retailers.

I think there are two key lessons from Super A-Mart’s recent history.

The first is that entrepreneurs need to be like John Van Lieshout and know when a price is simply too good to refuse.

The second is that entrepreneurs who are considering an exit need to think carefully and realistically about the current valuation of their business. Unfortunately, the world has changed.