Meanwhile, Out In The Real World

Insights gained from burning a bit of shoe leather can be as valuable as reports, spreadsheets and ratios

- Greg Hoffman

I arrived early and took a front-row seat, keen to observe every second of the 2017 McGrath Ltd annual general meeting. There’d been talk in the media that founder and major shareholder John McGrath might take the company private after a difficult two years of listed life. And with a share price fall of around 75% since the float, my contrarian instincts had kicked in. I was getting interested in the stock as a potential turnaround opportunity.

The directors began to arrive in the minutes before the meeting was scheduled to start. Separately. There was very little talk or camaraderie between them. John McGrath’s body language was downbeat and the air was thick with tension.

My gut told me that this was not a man on the verge of launching an audacious privatisation proposal. And the seemingly icy relations between directors didn’t bode well. This didn’t strike me as a tight team hunkering down together for the long haul.

Importantly, attending the annual meeting may have saved me from making a mistake. Before the meeting I’d been running the numbers on McGrath, attracted to its property management division and the potential of its mortgage broking business. But I was unsettled enough to delay the thought of purchasing the stock after seeing potential issues at board level and developing the feeling that a privatisation effort was not under way.

In fact, two months to the day after the annual meeting, all directors not named McGrath announced their intention to resign. So did CEO Cameron Judson, leaving the company’s founder to step back into the leadership breach.

Not only does John McGrath now face the challenge of a perilous operational turnaround but, as the last person standing on the board, he has the difficult task of recruiting directors into a business facing further tumult and potential litigation. At the time of writing, no privatisation bid had emerged.