Apocalypse Now: Automotive Solutions Group Ltd
Well, well, well. When I commented on Automotive Solutions Group Ltd (ASX: 4WD) two weeks ago I didn’t think I would have any more to say on the topic. How wrong I was. The company is morphing from prospective investment venture into a snowball rolling downhill, and the pace has been accelerating. One issue really stood out to me about today’s update, and I’ll get to that in a sec.
I don’t want to squander too many words on the business. The CEO has been given the shaft and non-exec Bryce Wedemeyer has stepped in as CEO and COO. 3 of the 8 recently acquired businesses are underperforming. There’s talk of a ‘turnaround strategy’. Woeful for a company that just listed but nothing overly outlandish.
What really blew my mind was this:
“ASG considers it has strong legal grounds to seek redress from the vendors of Umhauers and is exploring all legal options in the matter. Management will provide an update to the market in due course.”
Say what? Automotive Solutions group bought Umhauers from the Umhauer family, and, Kris Umhauer is the general manager of Umhauers and has an equity stake in Automotive Solutions Group (or at least, a deferred equity grant was part of his fee for selling).
Automotive Solutions Group is considering suing their own employee, who operates a key business for ASG. It would be like if Wesfarmers Ltd (ASX: WES) decided to sue the CEO of Officeworks (which is owned by Wesfarmers) following the withdrawn IPO.
What’s more, one of the most attractive features of ASG was that the founder-operators of many of the businesses purchased by ASG had agreed to stay on and operate these businesses, bringing with them all their reputation, experience, and contacts. Now, management has told the world that they want to sue one of these key operators.
What do you think will happen to staff morale at the other businesses, and the business’ reputation among customers? These are established businesses with significant contacts and reputation in the industry. While not homogenous by any means, these business owners have a lot in common with each other, as well as with independent distributors that ASG wants to attract to its banner.
There’s no way to mitigate the damage that word-of-mouth can do. How might a prospective ASG banner-man view the story of ‘ ASG bought Umhauers and then sued Umhauer when business slowed down‘. That’s a value-neutral story, by the way, and it sounds awful. Its potential in the hands of disgruntled employees is monstrous.
I’m totally mind-boggled. ASG has not just shot itself in the foot, it has cut both its feet off.
Management has run a very high risk of simultaneously destroying the engagement of crucial staff at current businesses as well as their chances of winning new businesses to the banner. Nobody wants to work for a company that might sue their employees. Whether Umhauers was sold to ASG under false premises or not, management has turned underperformance into a crisis that could destroy the entire company.
And you know what’s worse? CEO/COO Wedemeyer is new to the automotive industry. Here’s this about his experience:
“Bryce has considerable experience and proven successes in advisory, mergers and acquisitions, corporate restructuring and debt and equity financing from his time working in the law and for major accounting firms.”
Don’t get me wrong, I’m sure he is a good guy. He was one of the better aligned directors in my opinion and a good fit for the board. He would have been my first choice if I owned 4WD and needed a CEO to step in at short notice. Still, I wonder if he has ever installed a turbocharger or cut a piece of steel to fit a vehicle. Maybe he’s exactly what the business needs, a pair of fresh eyes, as it were.
But the point is that he has become the CEO at the same time as ASG is totally undermining its key staff that do the things that actually make the business money.
I think the company has put itself in a serious situation here. I am extremely grateful that I dodged that bullet, because by waiting to buy it I didn’t buy it at all. I feel sorry for the original investors at the IPO though.
I have no financial interest in any company mentioned. Although after today, I might go short ASG if I can find some shares to borrow. You’ll read about that if it happens.