From a company that was on its knees with $6 million annual losses in the lead-up to 2013, independent Australian hearing care retailer Bay Audio is today feeling the positive reverberations of its turnaround strategy with a $550 million acquisition from Italian-British hearing solutions group Amplifon.
Now with 100 points of sale across Australia's east coast, Bay Audio has posted 20 per cent annual revenue growth for the past five years to hit $100 million in sales in the 12 months to 31 May, based on a business model catering to high end customers with spontaneous traffic in major and urban shopping centres.
It is a kind of CBD focus that could have spelled disaster for the retailer, but even during the pandemic it has seen solid profitability amidst strong same-store growth and new store roll-outs.
Over the same period the company reported $30 million recurring earning before interest, tax, depreciation and amortisation (EBITDA), with expectations this will grow by 30 per cent in the year to 31 May, 2022.
The cash-out represents a huge windfall for major shareholders and co-founders Peter and Anya Hutson, as well as investor James Reeves.
The origins of the company were in 2000 with a New Zealand-focused business that in 2007 was sold to Abano Healthcare. In that same year, the Hutsons entered a 50-50 joint venture to take the model to Australia with Bay Audio Australia.
"When we crossed the Tasman we found that model that were developed in New Zealand didn't work well, and we had to invent a model that was even more customer focused and was more of a mould breaker," Peter Hutson tells Business News Australia.
By 2013 the Australian business had accumulated losses of around $60 million. Meanwhile, the New Zealand business that had spawned it had already changed hands twice - first it was sold by Abano to Sydney-based Crescent Capital, which then merged it with National Hearing Company (NHC) before the combined entity was sold to Italian Stock Exchange-listed Amplifon.
While their NZ-focused business had attracted suitors, the Hutsons needed a fresh approach with the Australian group so they enlisted the help of turnaround specialist Adrian King of ASX Partners, who more recently was consulting for a group of aggrieved joint venture partners who unsuccessfully tried to wrest control of beleaguered Gold Coast-based dental roll-up Smiles Inclusive.
"We teamed up with Archer Capital from Sydney in an attempt to take over the company in 2013," King tells Business News Australia.
That takeover attempt became hostile and ultimately failed, was followed by an attempt to oust the Abano chairman which didn't work, and then another takeover attempt failed in 2017.
The Hunts then opted to sell their stake in Abano for NZ$30 million, and along with Reeves they purchased Abano's remaining 50 per cent share of Bay Audio Australia for around NZ$35 million.
Once the company's majority control was back in its co-founders' hands the turnaround strategy was well on its way. King puts the approach's success down to three ingredients: data-driven, process-driven and founder-driven.
"Peter and Anya returning back into the bossom of the business having previously been passive investors, so they relocated from New Zealand back to Australia to take a hands-on approach," King says.
"Peter had a rare talent, an exceptional talent, for being able to consumerise health care. He had an ability to blend the consumer and the consumer's needs with clinicians and healthcare provisions, and to reconcile the two," he says.
"There's no magic recipe on this one. It's a case study in the power of data and following process-driven execution, and the key here about the execution was a strong emphasis on people."
The turnaround involved a heavy focus on data analytics at the start, bringing in LEK Consulting to map out every Bay Audio store and its performance inside out.
"We knew exactly which stores were not performing, and critically at what point in the business process we were failing," King says.
"We got the essential elements of that model right pretty early, but then we struggled with execution. Getting the execution right involved bringing in good management with a retail background," adds Hutson.
King says an ultimatum was given to management, setting a hard of "you must break even within four months, otherwise we will close the business".
"That, I would say, was central to future success. Set a hard deadline, or we close. Within four months the business broke even," he explains.
"The same principles that led to a turnaround have enabled it to carry on the journey."
In the words of King, reuniting with Amplifon which already owns Bay Audio's NZ-based predecessor is kind of like "bringing the band back together".
"I am delighted that Bay Audio finds a new home in the Amplifon Group and is reunited with the Bay Audiology business in New Zealand," says Hutson.
"Both Bay Audio and Amplifon are best-in-class retailers with an extraordinary focus on customer experience and people development.
"I am confident that, inside Amplifon, Bay Audio will expand the legacy we have built and continue to accelerate its growth trajectory."
Amplifon CEO Enrico Vita describes the acquisition as a key milestone in the group's history, perfectly fitting its model and merger & acquisition strategy.
"Moreover, this deal will enable us to build another Company stronghold, further strengthening our position in the Australian retail market, the tenth largest in the world," says Vita.
"The combination with Bay Audio's complementary and innovative business model, its premium positioning as well as its high-growth and profitable financial profile will allow us to create tremendous new opportunities to drive growth and deliver significant value to all stakeholders.
"Finally, we look forward to welcoming the management team and all the people of Bay Audio to our organization which, together with our people of Amplifon and Attune, will create a unique platform to offer the highest quality hearing care in Australia."
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