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Breaking: SurfStitch in “Total Collapse”

Derek Rielly

by Derek Rielly

Shareholders "likely to face complete loss on their investment."

How do you solve the problem of a biz built on what is essentially a solid foundation but ruined by a “failed acquisition strategy” and facing various law suits and an investigation by the Australian Securities and Investment Commission?

Hoist a white flag and call in the administrators. It’s a way a company like SurfStitch that ain’t doin’ so well, maybe it has a viable biz but needs a little time to steady the ship, can keep creditors at bay while an administrator works out what the hell it should do, if it’s viable and so forth.

Although, as reported today by The Australian,

“The long-troubled surf and sports products online retailer SurfStitch has collapsed into voluntary administration, ending the public life of one of the worst floats on the market in recent years, leaving its shareholders likely facing a complete loss on their investment.

“SurfStitch has the ignominy of being one of the worst performing floats in recent times. Set at an IPO price of $1 when the company floated in late 2014, the shares soon crashed following a string of profit warnings, class action law suits, failed acquisition strategy and then the shock loss of one of its co-founders and co-chief executives Justin Cameron soon after its float.

“The long-troubled surf and sports products online retailer SurfStitch has collapsed into voluntary administration, ending the public life of one of the worst floats on the market in recent years, leaving its shareholders likely facing a complete loss on their investment.”

“The cracks started to show in SurfStitch soon after it floated on the ASX, with the company plunged into turmoil in March 2016 when Mr Cameron quit via a one-line email to the board, as he joined forces with a private equity firm to launch a possible takeover of the group. SurfStitch, led then by chairman Howard McDonald, had been scrambling since to regroup executives and integrate the businesses that SurfStitch bought up since its $83m float in late 2014.

“In 2015, SurfStitch kicked off an acquisition spree, as it extended its reach beyond online retailing of surf and sports goods – which was its original business model – to buy up a host of other companies. SurfStitch paid $23.7m for specialist global water board distributor Surf Hardware International and prior to that paid $21m for Stab, a leading online surf content platform, and surf forecasting network Magicseaweed. It also bought Garage Entertainment and Production for $15m.

“Many of those deals failed to deliver the returns SurfStitch had hoped for.”

“Earlier this year, law firm Quinn Emanuel filed an open class action in the Supreme Court of Queensland for anyone who bought or held shares between August 27, 2015, and June 8 last year included in the litigation. It represents a potential $100m lawsuit.

“The plaintiffs allege Surfstitch was trading at a loss in August 2015 but announced that it was expecting EBITDA to double in the 2016 full-year. Surfstitch allegedly covered up the loss by entering a series of copyright licensing deals with surf technology group Coastalwatch and Three Crown Investments.”

A meeting on September 5 will update shareholders on the progress of the administration and what sorta cut they might get out of their seven cent shares.