How structural change is hitting the rich

Back in the good old days – you know, from 2005 to 2007, when credit was cheap and anything seemed possible – Australia entered one of the biggest period of asset sales it had seen, with our richest business people leading the charge.

Lang Walker flogged $1.1 billion worth of property assets. James Packer and Kerry Stokes raised $500 million each by selling parts of their media empires. John Van Lieshout was one of many selling out to private equity; he got $500 million for his Super A-Mart furniture chain.

The GFC and the seemingly never-ending GFC hangover saw the sales slow to a trickle – until this week.

First came the news that Australia’s “chicken king”, Bob Ingham, was selling his giant poultry empire Inghams Enterprises, with speculation that his family could get up to $1.6 billion.

Then came the announcement that South Australia’s Gerard family was selling its ASX-listed group, Gerard Lighting, to a private equity firm for around $186 million – just two years after floating the business for around $177 million.

Unlike in the heady days of 2005 and 2006, these deals are not being driven by the promise of fabulous prices, but are instead taking place against a backdrop of structural change.

The rich might be great at picking trends ahead of the rest of the market, but even they cannot outrun the structural change hitting the Australian economy.

Take the Lea family, owners of the Darrell Lea chain that collapsed into administration two weeks ago.

The Lea family was a member of the BRW Rich List for three years, peaking in 1988 with a fortune of $40 million.

While they have not graced the list’s ranks for 24 years, the demise of their business has been accelerated by incredible changes in the retail sector.

The rise of the private label, the pressure from higher labour costs, shifts in consumer trends towards healthier foods and the general mood of austerity across the retail sector have all buffeted the business in the last two years, adding to a general decline in market position that started years ago.

Let’s take a look at three of the prominent recent examples of structural change hitting the rich:

James Packer and the new face of television

James Packer’s decision to sell his stake in Consolidated Media, which owns a 25% stake in pay television group Foxtel, appears to be driven by two factors.

Firstly, he needs cash to help fund his bid for a greater stake in Sydney casino operator Echo Entertainment and potentially other casino investments in Asia.

But there is a sense from many analysts that Packer is selling out at what could be the top of the pay TV market in Australia. As in other areas of the media, it is the structural change driven by the internet that Packer could be seen to be reacting to. As usage of internet television services (IPTV) become more prevalent in Australia, growth in pay TV penetration could be under pressure.

Packer has expertly timed his exit from free-to-air television and magazines to get maximum value before they were hit by structural change. He looks to be doing the same here.