Ron Sim: One Bad Deal Did Not Have to Destroy OSIM

A failed acquisition does not automatically have to become a failed company. The difference is whether management recognises the damage early enough to protect the core business.

In 2005, OSIM led a consortium that acquired US retailer Brookstone for US$475 million. OSIM borrowed S$100 million for its own stake. When the global financial crisis hit, Brookstone's performance deteriorated and pressure spread back to OSIM.

Ron Sim later recalled that banks threatened to pull credit lines. OSIM launched a S$60 million rights issue, with Sim personally committing to take up unsubscribed shares. The company ultimately recorded a write-off of about S$77.31 million on Brookstone.

Accepting the loss protected the company

Brookstone later entered Chapter 11, but by then OSIM had already recognised the impairment. Sim said OSIM's share price had fallen from around S$2.90 to 5.5 cents before recovering toward S$2.80 after the impairment and subsequent operating recovery.

What founders can learn

1. An acquisition thesis can be wrong without the whole company being wrong.
2. Recognising impairment can be healthier than defending sunk costs.
3. Recapitalisation works best when the core business still has credibility.
4. Acquisition diligence should stress-test financing risk, not only strategic upside.
5. Public-market pressure can amplify a turnaround, but it does not remove the need for long-term discipline.

The iPivot perspective

Before a major acquisition, management should understand the downside case: revenue misses, higher financing costs, slower integration and additional capital needs. A transaction should not put an otherwise healthy core at existential risk.

Sources

• ISCA Chartered Accountants Lab — Survival Insights Earned Through Four Recessions
• The Business Times — Ron Sim and the Brookstone experience

Independent business-learning commentary. References are for educational and historical discussion only and do not imply affiliation or endorsement.