by Kelvyn Alp

 

Introduction: The Illusion of Success

In the high-stakes world of leveraged buyouts, the strategy of acquiring assets with minimal equity and substantial debt is a well-known gamble. Warren Buffett once remarked, “Only when the tide goes out do you discover who’s been swimming naked,” – a sentiment that seems increasingly relevant to Wade Glass and Paul Southam’s recent activities. This article delves into their aggressive acquisition tactics, raising questions about the sustainability and ethics of their financial manoeuvres.

 

Swimming Naked – Wade Glass and Paul Southam’s Acquisition Strategy

Latest Leveraged Acquirer: Wade Glass & Paul Southam “MNF” 

Wade Glass and Paul Southam, as a team, have emerged from relative obscurity, making a name through a series of high-profile, leveraged acquisitions. Their strategy involves making acquisition after acquisition with minimal equity, predominantly through sale and leasebacks at above-market rentals, created by their entities. This approach leaves the acquired entities burdened with unsustainable debt and unprofitability, a classic recipe for disaster.

Notable Acquisitions and Their Fallout

RH Tregoweth: Faced significant financial strain due to delayed payments.

• Harveys, Strong Bros, and Freshmax: These acquisitions followed the Sale and Leaseback model, plunging the companies into deep debt. Freshmax faced immediate operational issues, having to sell multiple orchards to Craigmore and NZ Rural Land Co to reduce its debt load. Freshmax’s debts to Maui & Crasborn Bros highlight the severity of the financial mismanagement.
• Latest Apple Orchards Sale to Beehive: The latest sale and leaseback deal involving apple orchards to Beehive. Beehive is a subsidiary of the massive European Fund, Munich RE – a German-based company. Clearly they are in process of completing due diligence on who they are dealing with … in our opinion will it be achievable to obtain OIO …further illustrates the unsustainable nature of these transactions. The leases are structured at above-market rates, requiring Overseas Investment Office (OIO) approval, and adding further concerns of the enormous, unmanageable leases that threaten the financial viability of the apple orchards.

Property Funds

Several property funds are caught up in MNF’s complex structure, which appears to include inflated equity and lease valuations. These include:

• Centuria: Involved in Freshmax and Superb Herb acquisitions, how do wholesale funds sustain above-market lease terms, can the assets sustain?
• Craigmore and NZRL Co: While Craigmore might have had an outright sale, NZRL Co faces above-market lease agreements that surely could affect financial viability?

Superb Herb

A closer look at the Superb Herb acquisition sheds light on MNF’s approach:

Transaction Structure

Surprisingly, Centuria’s were offered to buy assets at an inflated price, followed by a sale and leaseback at above-market rates. This structure provided immediate cash flow for MNF but left Superb Herb financially strained.

Operational Expertise

The exit of the Superb Herb GM, who was the key with operational expertise, left the company vulnerable. This departure highlights the risk of relying on financial manoeuvres over solid operational management.

Profitability Concerns

Post-lease profitability appears unattainable. The terms of the lease and the leverage involved creates a bleak financial outlook, suggesting that the company cannot sustain itself under the current arrangements.

Sustainability of Leases and Overdue Payments

The sustainability of these high leases is a major concern. With above-market rentals, the companies are left in precarious positions, where generating enough revenue to cover the lease payments becomes nearly impossible. Additionally, there are numerous overdue payments to suppliers, reflecting the poor financial health and operational inefficiencies of the businesses under MNF’s control. This pattern suggests a short-term, profit-maximizing strategy without any intention of owning or growing these businesses long-term.

We reached out to Wade Glass over the concerns from creditors who are owed money, lease sustainability and the large leverage debt. Wade’s position is as follows, speaking on behalf of MNF:

Addressing concerns around overdue payments and operational sustainability, Wade Glass stated, “We covered the slow payment of creditors following the cyclone, and we’re nearly out of that. Most have been supportive except one smaller supplier, who we terminated. Everyone in HB has been paid or is very close to it. South Island has been slow, but again, we’re nearly up to date and will be by the end of July. Our business is seasonal, and all current year costs are now incurred, product shipped, and we are waiting for customers to pay.”

Regarding the strategic importance of recent acquisitions, Wade added, “The South Island purchase was terrible timing for us, but with a 94-year-old vendor, we needed to make a decision. Long term, the two businesses are set up to create changes necessary in the apple industry. Investment in new varieties. Automation via robotics, etc. Less control by big corporates, who are starving the profits of small growers, who are dropping like flies. The small farmers take all the risk and the middlemen make the profits. That’s our side of things. The land sale is the second transaction that deals with the ‘massive debt’ alluded to in your previous tagline. It sets us up for a sustainable future”.

 

Conclusion: The Calm Before the Storm?

As Wade Glass and Paul Southam continue their aggressive acquisition strategy, the financial community watches with bated breath. Their high-risk, high-reward approach, coupled with opaque dealings and potential regulatory risks, suggests that the tide is about to go out. When it does, we may indeed find who has been swimming naked, revealing the true extent of the financial and ethical mire beneath the surface of their apparent success.

This situation is reminiscent of the movie “Wall Street,” where Gordon Gekko’s ruthless tactics led to significant short-term gains at the expense of long-term sustainability and integrity. Similarly, Wade Glass’s approach appears to prioritize immediate financial gains over the long-term health and viability of the acquired businesses, raising serious concerns about the future of these entities and the broader market implications.

This article provides a comprehensive and detailed overview of the concerns and intricacies surrounding Wade Glass and Paul Southam’s business practices, highlighting the potential for significant fallout in the near future.

 

 

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