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Suits & Tech Collide – Don’t Buy A Business You Don’t Understand

vintage-stage-light3

vintage-stage-light3

The ructions at Hills Limited last month, and the proposed sale of Staging Connections are symptoms of the chaos when big business goes where it should not.

Guitar Centre in the USA is a golden example. Raped and pillaged by vulture fund Bain Capital, the massive US music store chain will never make a return on the US$2 billion paid. The suits never understood if you trample on guitarist staff, they will go find another gig – and the clients can always find another place to buy.

Thirty years ago Rank Industries, a UK based conglomerate was in the middle of wrecking an esteemed lighting manufacturer called Strand Electric. They had bought the hundred year old firm, steeped in theatre traditions, in the late 1960’s.

Through the 1970’s the Rank suits went out their way to dislodge and disenfranchise Strand staff, customers, and the theatre industry. Rank introduced layers of management and processes that were totally at odds with Strand.

Previously a customer would ring to order a light, and call it by what it was. ‘I’ll have a Pattern 45, please’, they would say. Thanks to Rank, a call centre drone somewhere deep in the bowels of a Rank subsidiary, would require its code: 2003008. The Pattern 45 had become a seven digit number.

Rank had their grubby fingers in many pies, including manufacturing colour TV sets in Sydney.

Rank Expands Into Audio

Not content with abusing the Strand diaspora, the Rank suits started importing audio into Australia and had built a reasonable suite of brands by the mid 1980’s.  Across town was Klarion Enterprises, a large privately owned distribution company run by Brian Horman.Brian Horman

Deciding to retire, he sold Klarion to Rank, spawning what was sometimes referred to as Klank. Immediate problems arose that were exactly akin to what long suffering Strand staff had endured. Brand confusion was rampant, with what seemed like an entire constellation of mixing consoles thrown together, like Allen & Heath, Soundcraft and Soundtracs (precursor to Digico) all offered by the same reps.

The audio industry pushed back, opening up opportunities for other importers like Jands and new start-ups like AR Audio Engineering (now TAG).

Rank Electronics as it was then known was flogged off to Abe Goldberg’s Linter Group, which soon found infamy through a ‘bottom of the harbour’ scheme. A disgruntled manager peeled off some of the brands and started his own import firm called Hyphon.

In 1987 the whole thing crashed (including Hyphon) and from the ashes rose Amber Technology (now a major audio distributor) and Bytecraft (now PRG Australia). There were perambulations and variations but that’s the potted history of Rank Electronics in Australia – an epic failure.

Samuelson Buy Jands Concert Productions

By 1984 the publicly traded Samuelson Group in the UK had taken over Zenith Lighting, Rainbow Lighting and Theatre Projects. They changed their name to Samuelson Concert Productions PLC.

In 1985 they bought Jands Concert Productions. It was an interesting era. JCP head Eric Robinson moved to London to organise the diverse cluster of businesses. At the time, they had an A-list of touring acts like Bruce Springsteen and Tina Turner.

Australian Eric galvanised the London public company suits. An anecdote from the time had Eric inspecting a warehouse where he discovered a vintage Rolls Royce gleaming away under the highbay lights. ‘Get that (expletive) thing out of here’, he is rumoured to have yelled. The chairman, who owned the excellent conveyance, was not impressed.

Another story had the suits rounding on Eric and calling him a convict swine, or some derivative. He had a suitable retort, not fit for publishing in this family magazine.

Frustrations mounted and Eric returned to Australia. Eventually Samulelsons realised they had no idea, that a personalised services business like live production needed persons prepared to provide service.

They put the business up for sale, and Jands repurchased the JCP business in 1992 – for half the price they were paid.

Aav Becomes Staging Connections

There’s a bit of faint lineage from the Rank era here, because Brian Horman’s daughter Fiona retained a family business (from the sale of Klarion) called Regency Recordings – which was later acquired by post production firm AAV.

Before the Global Financial Crisis, AAV Limited was riding the sharemarket as a public company and raising easy cash from investors. Then Staging Connections was rolled into AAV in 2003 for around $36 million, paid in cash and shares. Staging at that time was a national cluster of partner firms controlled by management in Sydney.

‘We are a world-wide event services business’, the then CEO Michael Gardner said in 2006. He had just announced the acquisition of 51% of Gearhouse South Africa by Staging Connections Group Limited, which by then AAV had become named.

Staging Connections went on a mind bending strategy of growth through acquisition, ending up owning Bytecraft, Exhibitions Trade Fairs, and a slew of offshore firms. Six acquisitions were made in seven months. At one stage they were talking to almost everyone who ran a business and had a pulse. They were even mad enough to seriously contemplate buying Julius Events College – and would have, had we been prepared to sell!

Gardner lasted three years at Staging, during which amazing money was paid out, most significantly the $42.5 million Bytecraft deal. For that Staging Connections got a well managed stage lighting company, whose staff were completely allergic to the idea of synergies with Staging Connections.  While Staging Connections did lighting, it was nowhere near the scale or level that Bytecraft achieved.

Management at Bytecraft adroitly resisted head office ideas, directives, entreaties and offers, and preserved their company culture. Bytecraft was eventually sold to PRG in 2011 for between $9 and $15 million, depending on how you read the numbers.

Gardner left a share price smashed down to almost nothing, and Tony Chamberlain was hired to sort out the mess. He remains at the helm today, having paid his dues with five long years of cost cutting, asset sales and consolidation.

Nine years later the Staging Connections omelette has been unscrambled with the sale of the remaining core Staging Connections business to PSAV, a United States based supplier of event technology services within the hotel, resort and conference center industry.

The voyage cost the shareholders a staggering amount.

Allens Billy Hyde

In 2005 The Brackenbury Group headed by Tim Mason and John Helm bought Allens Music, Australia’s oldest chain of music stores. Mason and Helm were accomplished retailers, and initially the business worked well, until it merged with music chain Billy Hyde in 2010.

Hyde came with associated firms. Music Link was a growing importer of equipment which was trading well. The Stage Systems company (known as Billy Hyde Stage Systems) was also part of the package.

The Hyde owners wanted out. Investment mob Crescent Capital had also bought into Hyde and Music Link, and they wanted cash.

Once all merged together it was known as The Australian Music Group. The venture had 28 stores, and in no time at all it sailed into difficult economic circumstances in 2011. The Australian dollar was rising and consumers took to the internet to buy offshore. Retail was hurting.

A white knight known as Revere Capital popped up and injected funds into the group in 2011, and then called in the loan in 2012.  The chain was put into receivership and commenced a very long sell down of stock. The 500 staff were poorly informed and badly treated, and many suffered a terrible Christmas.

Eventually the Stage Systems business was sold to AJ Maddah, the mercurial Persian promoter behind the once successful Soundwave Festival. Some stores and the trading names were sold to Con Gallin who heads Gibson Australia. Music Link was closed down.

billy-hyde-photo

Hills Buys Audio Telex

In 2005 Australian industrial firm Hills Industries purchased Audio Telex Communications from the founders, Rod Craig, Roy Morgan and Alan Clarke.

It seemed too good to be true. Once Hills got control, the big Australian listed company did what it promised. They left the successful audio firm alone, albeit renamed Hills SVL.Stuart Craig

With access to capital and big company muscle, Hills SVL actually expanded and prospered, unlike other divisions within the greater Hills conglomerate. When convivial CEO Graham Twartz retired in 2012, the board hired Edward ‘Ted’ Pretty.

Things went wrong immediately; at least they did at Hills SVL. Despite the unit performing well, it was directed to sack staff and lower costs. Hills SVL head Stuart Craig (pictured, right) did as directed, and then – predictably for anyone who knew him – resigned.

The SVL name disappeared as Hills merged everything together. Non tech parts of the conglomerate were sold off, as was much of the real estate. Debt was paid down.

SVL staff was relentlessly pruned, with the highest paid fired first. The same thing was happening over in the Security tech side of Hills – good staff would be sacked or walk out, and go straight to work for the competition.

Initially the share market loved it. Ted Pretty had a narrative about a fresh new Australian technology company, with innovation centres and new ways to do business. Back end operations like warehousing and customer support were merged together and a controversial call centre was established to centralize all customer support.

Hills Detach From Ted

The chaos accelerated after Hills purchased Audio Products Group last July.

Itself brilliant managed, APG and Hills were mashed together. Ted ignored integration suggestions from APG founder Ken Dwyer, who walked away after the three month transition period.

Inevitably some important brands walked away – like Aiphone.

Meanwhile Crestron, the star brand in the SVL stable, set up their own operation in Australia – led by Stuart Craig, former SVL boss and son of founder Rod Craig. Stuart is and was always well regarded across the industry. Crestron represented as much as $30 million in business, which hurt Hills when it departed.

A downgraded profit announcement earlier this year saw the share price tank.

The wheels fell off Hills in May, when Ted Pretty suddenly left and the board announced a five million dollar impairment to cover ‘due diligence expenses for acquisitions that would not proceed’. It appears Ted had been wracking up the travel bill negotiating to buy offshore firms.

Ted has an interesting demeanor, and he said in an interview that he was now Ted 2.0, since Ted 1.0 was, umm, a little obsolete. Of his days as a senior executive at Telstra, he told The Australian newspaper he had a temper.

“I did a culture change program for the staff and I used to keep a sheet of paper that had a red side and a green side. And when I felt that I was going to lose it, I would turn it over to green and just remember to calm down,” he said.

The article says he was an ambitious deal-maker who was big on ideas but poor on execution. He is credited with one of the largest bad deals in Australian corporate history, an alliance with Richard Li’s Pacific Century CyberWorks in Hong Kong that cost Telstra A$3.5 billion.

But Ted’s time at Hills came to an end last month, after the board pulled the rug. He was there less than three years.

That day, a former Hills staffer Daniel Edwards wrote an op piece in Adelaide Independent News.

“Dear Ted Pretty, I am sorry to hear that you lost your job. During your employment with Hills you took a company that was turning over $1.1 billion dollars (down) to $400 million.”

“ I was on the often delayed phone call that told the team we no longer had a job. Myself and two other colleges missed a work anniversary by three weeks that would of had us receive another weeks severance pay but you and your manager of ‘people, performance and culture’ made it clear that you would not pay that extra week despite our dedication and blood, sweat and tears we put in to the company. The whole team had a terrible Christmas.”

“You probably do not even know me but I was the employee who asked you the questions that you had trouble answering and who you ridiculed for being respectful and calling you Mr Pretty.”

Hills will certainly survive, but pay the cost for a long time to come.

History will repeat itself of course. Eventually another large company or vulture fund will try its hand at something it doesn’t understand. Then another chapter will be added to this story. The engineers of chaos, those captains of industry, will glide out with golden handshakes while displaced staff suffer stress, loss, and sometimes ruin.

(Ted Pretty, below).

ted pretty

POSTSCRIPT: After publication I remembered CHUBB and Sontech. Without recourse to my files (as I am working from the kitchen bench today) the short story is Sontech was a fabulously successful chain of installation firms across Australia. They did the boring stuff, like fast food drive through intercoms, and supermarket PA systems. Chubb came along, bought the firms and the name, and messed it up in record time.

Best of all, the Chubb guys didn’t get the key management onto contracts, so they left and started again. Enter TecSound. It is another great saga, maybe I will update this later.

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juliusg

3 Comments

  1. TW on July 8, 2015 at 2:08 am

    Well summed up Julius….it’s good to expose these things to people (inside and outside the industry) who may not be aware. ….and as usual, you’re not scared to call a spade a spade!
    P.S. I think you’ll find Eric POLARISED the poms, not GALVANISED them. The old Rolls Royce story is still one of my all time faves, I think we can all hear & see him saying it.



  2. Stephen Hunter on July 9, 2015 at 4:49 pm

    Tecsound would make an interesting read.



  3. Anonymous on July 10, 2015 at 1:03 pm

    DN, As a long term loyal employee of Audio Telex / SVL retrenched just 2 months short of 22 years service, it drives me mad to see what has happened to a once great company & it’s remaining employees.




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