Finance

Destra placed in administration. What went wrong?

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Digital media and marketing firm Destra has been placed in administration after major shareholder Prime Media Group and the company’s bankers withdrew support for the company.

Digital media and marketing firm Destra has been placed in administration after major shareholder Prime Media Group and the company’s bankers withdrew support for the company.

“Continued adverse trends in the consumer and advertising markets and unprecedented

capital market volatility have… contributed to making asset sales difficult during this period,” the company said in a statement.

“Prime has also been working intensively with Destra on a number of proposals that have been put to the bank, but all of these have been rejected.”

Insolvency firm PBB will act as administrator, while St George Bank, which is owed $30 million by Destra, is believed to have appointed KordaMentha as receivers to the group.

So what went wrong?

Just nine months ago the company, under the leadership of founder and former chief executive Dominic Carosa, was singing distribution deals and making acquisitions. This morning, bargain hunters are circling the company’s carcass, looking for cheap assets to pick up.

A strategic review of Destra’s operations conducted by Prime in August revealed a number of problems; we’ve picked up a few more:

Growth explosion. According to Prime’s review, Destra acquired 13 separate companies over the past three years, across video, music, magazines, online community, media sales representation and content production. Carosa was trying to build a digital media empire, but the speed and scope of this expansion drive caused a number of other problems.

Too little integration. One of Prime’s biggest beefs was that the different companies Destra acquired were not well integrated with each other. Worse still, they “lacked critical mass in their chosen market segments”. Shortly after Prime installed David Gordon from Lexicon Partners as the company’s executive chairman, Destra ripped $4 million of costs out by cutting head office staff.

Too much debt. The acquisition drive was mainly funded by debt, which was fine when the economy was booming, but deadly when interest rates starting rising and consumer spending started falling.

The Beyond International debacle. In late 2007, Destra acquired a 10% stake in listed film and television production company Beyond International, with a view to taking over the entire company. One problem – it used margin lender Opes Prime to finance the transaction. When Opes Prime fell over, Destra was forced to take a $900,000 loss on the transaction. For a company that was forced to borrow $2.2 million in October just to cover cashflow, it was a loss that Destra could ill afford.

The Opes distraction. Dominic Carosa also lost the bulk of his stake in Destra when Opes Prime collapsed. While it was hard not to feel sorry for all the entrepreneurs caught up in the Opes fiasco – and Carosa certainly took the setback well – the entire incident was a huge distraction for the company. Just weeks later, Prime seized control of the company.

Destra’s administrators and receivers will now begin a review of the business and will seek to continue the asset sales process.

Many of these divisions may turn out to be successful small companies when taken outside of the Destra structure, but the vision of the company’s mutli-media vision has now been laid to rest.

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