By Patrick Avenell

Anchorage Capital Partners has revealed details of its Initial Public Offering (IPO) of Dick Smith. Anchorage is looking to raise $344 million from this offer, which will go on sale to institutional investors on Thursday 21 November 2013 and to retail investors the following day.

The offer price for shares is $2.20 and there will be 156.6 million shares offered, with Anchorage retaining 47.3 million.  At the conclusion of the IPO, Anchorage will retain a 20 per cent stake in the company, which will list on the ASX as Dick Smith Holdings Limited.

Here is Dick Smith managing director and CEO Nick Abboud, via a media release:

"Today is a very exciting day for Dick Smith, our team and our customers.

"Dick Smith is an iconic and trusted brand in consumer electronics, and management is very excited about the opportunity to list the company and pursue profitable growth on behalf of shareholders. Dick Smith has undergone a significant transformation under the dynamic ownership of Anchorage.

"With the transformation initiatives largely implemented, management put in place a comprehensive strategy and plan focusing on key business initiatives which provide a strong platform for growth and the further development of our business.

"The IPO provides investors a great opportunity to share in this continued development and what we believe will be future success."

The prospectus for this IPO reveals Dick Smith made a net profit after tax (NPAT) of $6.1 million for first quarter of FY2014, from $273 million in total sales. During its last full year of Woolworths ownership (FY2012), Dick Smith had an NPAT of $13.2 million from $1.37 billion in sales.

Since taking control of Dick Smith from Woolworths in mid-2012, Abboud and the Anchorage team has methodically prepared for this moment, clearing excess stock from Dick Smith stores, re-energising the tired brand and opening new store-in-store concepts in partnership with leading brands, such as Samsung.

When the sale was finally completely, Anchorage had paid $94 million for Dick Smith. While the IPO will have been priced to ensure a profit from this venture for Anchorage Capital Partners, it is worth noting that there has been significant investment in Dick Smith during this period.

In two bold moves for the consumer electronics industry, Anchorage partnered with David Jones to service the department store’s consumer electronics business and opened a new chain of ‘fashtronics’ stores called Move.

The David Jones partnership has given Dick Smith access to a whole new set of premium consumers, not normally associated with the value-based offering Dick Smith has traditionally provided.

The Move concept has been especially groundbreaking. In an era where most retailers are carefully watching store numbers and contracting where necessary, Dick Smith’s decision to start a new retail brand, merging electronics, accessories and fashion is a first for the industry and represents a core diversification of its offering, which provides appeal to potentially cautious investors; those concerned that Dick Smith is a publicly listed entity could be too one-paced.

Considering this scope of this investment and the encouraging public reaction, it is unsurprising that Anchorage is retaining a 20 per cent share in the company.

“Anchorage is retaining a significant shareholding in Dick Smith, reflecting its support for the transformation program and its confidence in the company’s forecast financial performance,” said Dick Smith chairman Phil Cave.

“Nick and his management team have driven a comprehensive program of strategic, customer, operational and cultural initiatives that have already delivered substantial improvement in financial performance and are expected to deliver additional benefits in the coming years.”

In its sales pitch to potential institutional and retail investors, Anchorage lists Dick Smith’s core strengths as an iconic brand in markets skewed towards high margins and growth; a multifaceted approach to retail, incorporating outlets, online, mobile and house brands; and experienced senior management.

In news that may interest Dick Smith’s supplier partners, the company’s private label or home brand strategy has been identified as strong source of expected profit after the public float.

“Dick Smith’s private label products accounted for more than 10 per of pro forma revenue in FY2013 and the Company expects to increase this contribution as part of its growth strategy,” Dick Smith Holdings says in its prospectus.

“Dick Smith’s private label products are typically higher margin than third party branded products, and as such represent both a revenue growth and margin expansion opportunity.”

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