It was the mighty American Investor Warren Buffet who said he gets cautious when everyone else is confident, and he starts getting confident when everyone else is cautious. People who have been trading in bank stocks over the last three months know what he means. And it’s happening in the DIY industry too.
In the general atmosphere of doom and gloom there are fortunes to be made. We all need a success story, and within the DIY industry it looks like a deal has just been done to create one for the future. This refers, of course, to the high profile situation of Robert Dyas – the major South East retailer with 99 stores. The management buyout of Robert Dyas has followed a well-established pattern. The private equity firm has got its fingers badly burnt and hard-nosed business managers have been able to buy their company back for a fraction of the value it had been nominally given.
People always look surprised when this happens – as if nobody could have predicted that the people who know their business inside out would be better judges of how to save it than people who manage investment funds. It’s a tiny part of a bigger problem and, unfortunately, the private equity guys are learning, almost daily, an old truism. Know your business.
The CEO of MacDonalds made this point when he was asked at a conference what he regarded as the core business. Everybody expected him to say chips or shakes or single burgers – but he surprised everybody by saying he and his accounting team had established that their core business was in fact Real Estate. The private equity firms, in general terms, have been a long, long way from knowing the businesses they own and the result is all too predictable.
That’s what’s happened to private equity firm ‘Change Capital’, whose sixty million pound capital investment has, well, changed – to put it politely. But Robert Dyas was crying out to be turned around. Within the DIY industry its whole approach was tired, and reeked of yesterday’s methods. All that will now change.
Of course there are more losers as a result. Their manufacturing will go to the Far East to get cost efficiencies and they’ll be introducing new categories, from different suppliers but hey –its better than the whole firm going under. When Woolworths can disappear, what price Robert Dyas?
So the news, really, is good for the industry. The management have a massive amount of hard work ahead of them but at least they have done a deal that makes that hard work worth doing. Their Chief Executive doesn’t seem to be too worried about the credit crunch, which is no surprise as he had had credit insurers who he describes as having been ‘very supportive’. Steve Round is just concentrating on his business, and perhaps there’s a lesson in that for everyone.