the Muir family remains the sticking point, with JB Hi-Fi having to factor in the substantial costs of integrating the business into its own business model on top of the purchase price. JB Hi-Fi also has had to mull over whether or not it could successfully convert some or, less likely, all, of The Good Guys stores to its own higher profile brand, and how to manage clash sites. There is also a risk factor in whether or not there is a sting in the tail of The Good Guys buy back of its franchisees. The Muir family remains convinced that it could realise more than $1.1 billion if the 100-store retail chain is floated on the Australian Stock Exchange towards the end of this year. Potential trade sale buyers, including JB Hi-Fi, value The Good Guys at between $800 million and $900 million. For the Muir family, there is no certainty of the $1 billion plus float given the volatility of the stock market, the continuing struggle of the economy that prompted yet another interest rate cut on August 2, and ongoing political uncertainty, especially related to the federal budget and debt pressures and superannuation changes. The prospects for a successful float could also be tested by investor caution after the demise of Dick Smith, the underwhelming debut of Kogan.com and even the competitive landscape with JB Hi-Fi and Harvey Norman dominant players and Steinhoff International keen to increase its market influence. While The Good Guys has obviously been a well managed business and not the train wreck that Dick Smith was, the collapse of Dick Smith last January will ensure close scrutiny by investors of supplier rebates and their contribution to the reported earnings helping to underpin the $1.1 billion price expectation of the Muir family. Despite the risks, an investor roadshow to drum up support for a public float of the company has given The Good Guys owners confidence about the likely success of a listing on the Australian Stock Exchange and the fact its price expectation could be realised. Years in the making JB Hi-Fi cast a ruler over The Good Guys five years ago when the Muir family first signaled an intention to sell the business, which launched with a single store in Melbourne’s northern suburbs in 1952. JB Hi-Fi and a handful of other potential suitors passed on the opportunity because of the price expectations of the Muir family, as well as concerns about the business model at that time, which involved a franchise structure for a large cache of stores. One of the reasons that the Muir family is so fixated on the $1 billion plus price tag for the business is the fact they have now outlayed considerable funds buying out the franchisees and preparing the business for sale. But the Muir’s price tag is virtually twice the jackpot that Anchorage Capital generated in listing Dick Smith on the Australian Stock Exchange in 2013 and represents around 13 times projected annual earnings for the first year as a public company in a highly competitive and tight margin retail category. The Good Guys has annual sales of more than $2 billion and commands a 12.5 per cent market share in appliances and electrical goods, but the key issue for investors or trade buyers is whether or not there is growth potential for sales and earnings and, prospectively, for the store network. The Good Guys has told potential investors that earnings before interest and tax will be around $85 million for the concluded 2016 financial year with the EBIT for the current financial year expected to be in the range of $100 million to $110 million. For JB Hi-Fi the acquisition of The Good Guys would be tantalising as it would lift sales from around $4 billion to $6 billion, lift market share in white goods and electrical appliances above 25 per cent, and expand its store network to around 300 outlets. The revenue profile of both JB Hi-Fi and The Good Guys stores is comparable at around $20 million a store. The size of The Good Guys stores is also a reasonably good fit with the JB Hi-Fi Home store format, which currently has 55 locations with seven new sites and five existing store conversions planned for the current financial year. One analyst believes JB Hi-Fi could afford to pay up to 12 times earnings for The Good Guys if it could find $20 million in synergy savings from the acquisition. However, JB Hi-Fi has been in no rush to strike a deal and its share buy-back suggests it doesn’t want to pay more than $850 million to $900 million and then face restructuring and integration costs. In a statement to the Australian Stock Exchange, JB Hi-Fi said it would buy back up 429,371 shares on market for around $11.8 million to offset the dilutionary impact of an employee share option issues. The cost and the actual number of shares was low and does not preclude a bid for The Good Guys, but in a statement detailing its annual financial results on the same day, CEO Richard Murray said the retailer would only pursue an acquisition if it, “made compelling financial sense to shareholders”. Murray noted that JB Hi-Fi was still “participating” in The Good Guys sales process, but had made no decision and had not entered into any agreements with the Muir family. Does JB need The Good Guys? For JB Hi-Fi, the lure of taking over a competitor is attractive, along with the market share boost, but the retailer doesn’t need to make the acquisition given its own strong sales and earnings growth and remembers the difficulties and costs associated with its acquisition of the former Clive Anthonys business in Queensland. JB Hi-Fi can comfortably live with The Good Guys as a stock market listed competitor, even if it proceeds with plans to add another 30 stores over the next three to five years. The query for JB Hi-Fi is whether or not its business would face a greater challenge in the hands of another owner, such as the acquisitive and deep-pocketed Steinhoff International, which is still in the mix for a major play in Australia. Steinhoff International or the Indian conglomerate, Tata, are at this late stage the only likely trade buyers apart from JB Hi-Fi. Harvey Norman had been keen to look over The Good Guys books, with chairman Gerry Harvey suggesting the chain would be a good fit with his store network for an outlay of around $900 million. But apparently the Muir family didn’t want to chat with the wily Harvey. In any event, the Australian Competition and Consumer Commission, which has now given JB Hi-Fi its blessing for the acquisition, would have been less likely to agree to a Harvey Norman takeover. In an announcement on August 11, the competition regulator said Harvey Norman had a “much higher degree of overlap” with The Good Guys business than JB Hi-Fi, despite the roll out of the Home format stores and competition in the key high value consumer electronics and home appliances categories. The ACCC said on balance it did not consider that the acquisition would substantially lessen competition in any market with a merged JB Hi-Fi and The Good Guys business continuing to face strong competition from Harvey Norman and other retailers such as Betta, Retravision, Bing Lee and Radio Rentals, as well as a large number of retailers for lower value, smaller electrical goods. In revenue terms, the acquisition of The Good Guys would position JB Hi-Fi as the sixth largest retail company in Australia behind Wesfarmers, Woolworths, Aldi, Harvey Norman and 7-Eleven. JB Hi-Fi’s sales would be closing in Harvey Norman’s annual revenues of more than $6.2 billion, a figure that is expected to be higher when the retailer’s 2016 financial results are released later this week. Released last week, JB Hi-Fi’s results continued the strong growth of the retailer as a public company, reporting an 8.3 per cent increase in sales to $3.95 billion.  The comparable sales increase was a healthy 5.4 per cent. Earnings before interest and tax increased by 10.1 per cent to $221.2 million. Richard Murray said the closure of the Dick Smith chain had boosted sales of computers, visual audio and accessories with the current financial year off to a flying start in July, with sales for that month up 13.4 per cent overall and 9.5 per cent on a comparable sales basis. Without The Good Guys acquisition, Murray is predicting JB Hi-Fi sales will rise to around $4.25 billion this financial year. In a reminder of just how challenging the white goods category can be, the Australian Securities and Investments Commission has finally closed a chapter on the Kleenmaid collapse with a former director, Brad Young, sentenced to nine years jail for fraud and 17 counts of insolvent trading. Kleenmaid crashed in 2009 owing creditors $96 million and another former director, Gary Armstrong, was sentenced last October to seven years jail on one count of fraud and two counts of insolvent trading.