It is a tough time to be a wealthy entrepreneur. Your fortune has fallen by an average of 40%, you’ve had to mortgage the house to pay that margin loan, and even the corporate jet is up for sale.
But many of our wealthiest investors are refusing to take the global financial crisis lying down and have employed some clever strategies to keep their fortunes rising – or, at the very least, stop their wealth from falling too far.
Here are some of the best strategies.
The collapse in credit markets has forced more than a few wealthy entrepreneurs to seek help in the form of a cash injection from new investors. Andrew Forrest, chief of iron ore miner Fortescue Metals Group, recently tapped Chinese company Hunan Valin Iron & Steel for around $90 million.
Earlier this week, Paul Ramsay’s Prime Media Group received $25 million in new capital after Kerry Stokes’s Seven Network took a 14.9% share. Transpacific Industries chief Terry Peabody, whose company is struggling under a mountain of debt, is also looking for a cornerstone investor.
Aussie Home Loans chief John Symond has seen his fair share of downturns – he almost lost the lot in the last recession – and he appears determined to make the most of this one.
In the middle of last year, Symond shored up Aussie Home Loans by selling Commonwealth Bank a stake in the company and stitching up a new funding deal with the bank. He then grabbed Wizard Home Loans brand and distribution network for a bargain-basement price, and has even hinted he may look at buying real estate franchise LJ Hooker if current owner Suncorp puts it on the market.
He’s likely to emerge from this downturn in a very, very strong position.
The Laidlaw family is best known as the long-time owners of the Hard Yakka brand. They sold the company in 2007 to the now-beleaguered Pacific Brands, pocketing around $270 million in the process.
Now the family has diversified into property, paying about $75 million for an office building in the regional Victorian town of Geelong. If you’ve got cash, this is a great time to pick up assets at depressed prices.
Expect to see other rich individuals and families pounce on bargains that are simply too good to refuse, even if they are outside their usual sphere of expertise.
Companies that are seen to offer customers value or some sort of discount are doing well in this downturn – The Reject Shop, Wotif and Country Road (which has been discounting heavily of late) are all good examples.
But the king of this trend is Richard Uechtritz, chief executive of JB Hi-Fi, who has worked hard to develop the company’s image as a bargain hunter’s paradise.
In the last 12 months, JB’s share price has actually increased by over 20%, taking the value of Uechtritz’s stake from $18.4 million to around $22.4 million – an incredible increase given how most other entrepreneurs have been walloped.
Paul Ramsay’s Prime Media Group might be struggling in the downturn, but his healthcare group Ramsay Health Care is well positioned to cash in on a trend that no downturn can stop – the ageing of Australia’s population.
While the Australian sharemarket has fallen almost 40% in the past 12 months, Ramsay Health Care’s share price is steady, and it is forecasting solid profit growth over the next few years. In a volatile market, demographic trends almost always stay solid.
One way to raise a bit of cash in the current market is to sell assets, particularly if your fortune is on the slide. One man who fits that bill is James Packer, who recently sold his family’s rural land holdings to British buyout firm Terra Firma in a deal said to be worth around $400 million.
Another struggling entrepreneur with his assets on the block is Mark Rowsthorn, chief executive of port operator Asciano. He’s looking at selling parts or all of the business in an effort to appease shareholders.
Buying a company out of receivership is a risky business. Yes, you can pick up a bargain, but these companies collapsed for a reason, and there is always a risk that the problems are unfixable.
That hasn’t worried Jan Cameron, reclusive founder of outdoor goods retailer Kathmandu. Her holding company Retail Adventures has paid about $100 million to acquire Australian Discount Retail, owner of the Crazy Clark’s and Go-Lo discount chains, which collapsed in January.
Importantly, Cameron has bought ADR without the $200 million debt it was carrying when it collapsed. If she can turn it around quickly, she will cash in on the downturn.
The depressed share price of property company Goodman Group has led to speculation that the Goodman family could be set to privatise the company. The family won’t comment on the speculation, but it is worth noting that this strategy has been used in the last few recessions.
It was utilised perhaps most notably by property developer Bob Ell, who took his company Leda group private in the early 1990s after the share price plunged. In recent years, Lloyd Williams and Brett Blundy have both privatised their empires.
Michael Malone is the founder and chief executive of Perth-based internet service provider iiNet. While most small tech companies have been hammered since the start of the year, iiNet’s share price has risen 25%, lifting the value of Malone’s stake to $36 million.
The key to iiNet’s resilience has been its leadership in product innovation, and particularly its Naked DSL product, which allows customers to get an internet connection without having to pay for a phone connection. The product has been so successful that even industry giant Optus has been forced to copy it.
The remarkable story of Paul Fudge, the rag-trader-turned-resources-baron, has only come to light in the last few days. On the face of it, Fudge looks to be a lucky guy. He leaves the fabric trading game, gets into the emerging but unheralded coal-seam gas industry, buys a patch of dirt with coal-seam gas reserves, and finds he is sitting on an asset worth up to $700 million.
But this is no fluke. Fudge picked a trend, invested heavily in recruiting a team that could find the right patches of dirt, and then had the patience and belief to stick with coal-seam gas when many critics declared it would never work.
His risk was huge, but so will be his reward.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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