Patriot
Administrator
Automotive Solutions Group, the 4WD aggregator which listed in December last year saw it's shares fall 62% on Wednesday after releasing a profit downgrade. The Courier Mail was reporting that the expected profit was down to $800,000 to 900,000 down from 3.3 million. The fall hit the CEO particularly hard, with her paper losses on the day being over $1,000,000.
As late as the 7th of March they expected Revenue of $42.7 million and Earnings before Interest and Tax of $6.5 million, however a profit downgrade released on the 26th of April stated that they where going to fall short of those numbers.
The drop in profit caused that market capitalisation to fall from $50 million on listing to as low as $13 million on Thursday.
ASG stated that 5 of the 8 businesses are tracking as expected, including AMA (Alloy fabrication), Dolium (importing and wholesaling), ASG 4x4 (Vehicle mods), Deering (air-con and electrical) and JDR Motorsports (vehicle performance).
The companies not meeting expectations include Umhauers with weaker retail sales, decreased revenue from Barden (which includes Uneek 4x4) and slower performance from Roo Systems.
Whilst stating that they are attempting to roll up businesses operating in the 4WD industry, it is interesting that one of the profit issues they have is a delay in a contract for steel for the NFL stadium in Atlanta. This implies currency risk if the dollar rises and also is not tightly focused on the 4 wheel drive industry. They've also launched a prototype vehicle, to demonstrate the vast one-stop shop offerings of the group, but they may not have understood the issues with national freight for product. We haven't been able to find a strategy around national logistics infrastructure, so it would have been interesting to see how much work was done in scheduling and ordering from a wide range of suppliers.
The idea of rolling up a range of businesses in the 4WD industry, providing shared services and marketing, and more professional training for their team of fitters is an excellent one. Better training for mechanics and fitters is a critical issues in the 4WD industry and most small businesses do not have the resources to do it properly, creating a lot of fitting issues.
Aggregators of smaller businesses though, face a number of challenges. Firstly is the retention of key staff. It isn't known what the compensation was for the owners of the businesses that were purchased, although it appears that at least some received some shares as a part of the deal. Those who took large sums of cash (it raised $30,000,000 and now has just 4,000,000 left, which implies a lot where paid cash), may no longer be as passionate about running the business that they previously owned, especially with a decent cash payout. The falling share price is a disincentive for previous owners as they see their nest eggs eroded to the point where they may not be worth anything. The falling share price makes it a lot harder to do future acquisitions.
The old share market adage, "Up by the stairs, down by the elevator," may apply here, meaning it may be years before the share price is north of $1 again.
Hopefully Tanya Mason and the team can pull this one together. It would be great for some of these awesome small businesses to flourish in a more corporate environment, but it will be a tough job.
**UPDATE **
Tanya Mason the CEO of Automotive Solutions Group has emailed in that, "the Vendors have 20% of their purchase consideration in scrip escrowed for 1 - 2 years and there is a claw back on performance. They have significant investment in ASG held in scrip. A strategic review is currently underway with a media announcement to follow."
Hopefully will help ensure that all of the Vendors continue to work towards a unified business.
As late as the 7th of March they expected Revenue of $42.7 million and Earnings before Interest and Tax of $6.5 million, however a profit downgrade released on the 26th of April stated that they where going to fall short of those numbers.
The drop in profit caused that market capitalisation to fall from $50 million on listing to as low as $13 million on Thursday.
ASG stated that 5 of the 8 businesses are tracking as expected, including AMA (Alloy fabrication), Dolium (importing and wholesaling), ASG 4x4 (Vehicle mods), Deering (air-con and electrical) and JDR Motorsports (vehicle performance).
The companies not meeting expectations include Umhauers with weaker retail sales, decreased revenue from Barden (which includes Uneek 4x4) and slower performance from Roo Systems.
Whilst stating that they are attempting to roll up businesses operating in the 4WD industry, it is interesting that one of the profit issues they have is a delay in a contract for steel for the NFL stadium in Atlanta. This implies currency risk if the dollar rises and also is not tightly focused on the 4 wheel drive industry. They've also launched a prototype vehicle, to demonstrate the vast one-stop shop offerings of the group, but they may not have understood the issues with national freight for product. We haven't been able to find a strategy around national logistics infrastructure, so it would have been interesting to see how much work was done in scheduling and ordering from a wide range of suppliers.
The idea of rolling up a range of businesses in the 4WD industry, providing shared services and marketing, and more professional training for their team of fitters is an excellent one. Better training for mechanics and fitters is a critical issues in the 4WD industry and most small businesses do not have the resources to do it properly, creating a lot of fitting issues.
Aggregators of smaller businesses though, face a number of challenges. Firstly is the retention of key staff. It isn't known what the compensation was for the owners of the businesses that were purchased, although it appears that at least some received some shares as a part of the deal. Those who took large sums of cash (it raised $30,000,000 and now has just 4,000,000 left, which implies a lot where paid cash), may no longer be as passionate about running the business that they previously owned, especially with a decent cash payout. The falling share price is a disincentive for previous owners as they see their nest eggs eroded to the point where they may not be worth anything. The falling share price makes it a lot harder to do future acquisitions.
The old share market adage, "Up by the stairs, down by the elevator," may apply here, meaning it may be years before the share price is north of $1 again.
Hopefully Tanya Mason and the team can pull this one together. It would be great for some of these awesome small businesses to flourish in a more corporate environment, but it will be a tough job.
**UPDATE **
Tanya Mason the CEO of Automotive Solutions Group has emailed in that, "the Vendors have 20% of their purchase consideration in scrip escrowed for 1 - 2 years and there is a claw back on performance. They have significant investment in ASG held in scrip. A strategic review is currently underway with a media announcement to follow."
Hopefully will help ensure that all of the Vendors continue to work towards a unified business.
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