God knows who'd wanna buy into the dumpster fire? did you not read today's AFR?
Is embattled tech minnow Nuix in play?
When Nuix boss Jonathan Rubinsztein was quoted in the media last week saying the embattled tech company was “very cheap” and a “very attractive acquisition target”, it whipped up speculation that he was either fishing for a bid – or one was coming.Rubinsztein’s well-timed comments to The Australian Financial Review on Thursday came shortly after the data analytics group reported a net loss of $22.8 million, a 190 per cent fall on the previous corresponding year, and a negative free cash flow of $21.5 million.
His comments may well have played a role in the small uptick in the share price, which closed on Friday at 71¢, up almost 4 per cent on a day when the overall market barely moved.“Calls about potential acquisitions would be expected given how low the price is,” Rubinsztein told the Financial Review, adding that “the real value of Nuix is obscured by regulatory and legal issues”.
Rubinsztein joined the company more than eight months ago and has been trying to reset it with a new strategy and structure – and focus on the future.
His comments last week fuelled the market’s rumour mill that vulture private equity firms or a big legal tech player might be sniffing around.But rumour and reality are two different kettles of fish. An operator willing to bid for Nuix, lock, stock and barrel could well be wishful thinking. Nuix, as it stands, isn’t an attractive proposition with declining revenue, haemorrhaging cash flow and massive legal and regulatory baggage overhanging the company.
In light of the many issues facing Nuix, a more likely scenario is a strategic player enters the fray and makes a tilt for the assets, particularly the Nuix Engine, which generates an estimated 80 per cent of total revenue.
This would allow the acquirer of the assets to dump the Nuix brand, salvage the IP and customer relationships and dodge the litany of problems and liabilities that plague the company.Whether Nuix and its shareholders go for this is the big question. Macquarie still holds 30 per cent of Nuix and therefore plays a key role in deciding its destiny.The reality is an asset sale would put shareholders in the unenviable position of having to vote for a deal that could potentially deliver them little to nothing.
Meanwhile, the issues facing Nuix are significant. They include a legal battle with its former chief executive, Eddie Sheehy, over a $183 million options claim. The case concluded last week with final submissions heard. Next will be the judgment.A 519-page affidavit lodged in the Federal Court by Sheehy proved to be a riveting read. It describes a culture where some staff allegedly had “extraordinary” expenses during a period of savage budget cuts.
There were also allegations of an affair between then-chief executive Rod Vawdrey and his head of human resources, which made it difficult to make complaints about the CEO.The affidavit also referred to a $100 million funding package with a super fund that was “killed” in mid-2016, around the time Nuix founder Tony Castagna believed he was about to be charged with tax evasion and money laundering. “I do not want to tell UniSuper. I am going to kill the deal instead,” he allegedly told Sheehy.After killing the deal, Castagna then brokered a deal with Macquarie which resulted in Macquarie gaining a controlling interest. Sheehy’s days were numbered, with allegations he was bullied out of the company.
Other issues facing Nuix include the long-awaited outcome of an investigation by the corporate watchdog into whether Nuix breached its continuous disclosure obligations. If the Australian Securities and Investments Commission finds against Nuix, it could be slapped with a fine and embolden the class action law firms that have filed in the courts, alleging breaches of continuous disclosure obligations among other things.
The story of the Macquarie-backed Nuix has been a tale of woe since it listed at an issue price of $5.31. In the IPO Macquarie sold down some of its shareholding and collected more than $565 million, contributing to bonuses for some Macquarie executives in 2021.
Within weeks of the December 2020 listing, the Nuix share price peaked at $11.86, putting it on a valuation of more than $3.7 billion as investors lapped up a 330-page prospectus that pitched the forensics software company as a growth stock.By February 2021, the share price had crashed 32 per cent after releasing an interim result that blindsided investors.
Dogged by unfolding scandals
Since then, Nuix has been dogged by missed forecasts and unfolding scandals, including allegations of insider trading against former CFO Stephen Doyle.
It is understood Doyle will refute the allegations.According to a well-placed Nuix insider: “Nuix is almost certain to need a cash injection in the next 12 months. It is burning cash on management overheads, legal expenses and its strategy. Its cost base befits that of a multibillion-dollar market cap company, not the $200 million minnow it has become.”In its preliminary accounts for 2022 it includes a note as a going concern, which is worth a read.
“Important to the assumptions used regarding a return to operating net cash inflows in full-year 2024 are the potential outcomes from the litigation matters … and the access to other funding sources should they be required to achieve the group’s strategy,” the note says.
“The uncertainties attached to funding sources, the unknown outcomes of the litigation matters together with the potential business impacts of the ongoing litigation matters, gave rise to the group concluding that while there are uncertainties related to events or conditions that may, in the event of any materially adverse outcome, cast doubt on the entity’s ability to realise its assets and discharge its liabilities in the normal course of business at some point in the future, it remains appropriate that the preliminary final financial statements be prepared on a going concern basis.”
The note also addressed judgment day in the $183 million litigation against Sheehy. “It may seek a stay of judgment pending the outcome of any appeal which, if granted, would delay any obligation to pay any liability arising from a judgment until an appeal is determined, which is likely to be at least 12 months beyond the date of signing of this financial report.”
As the Nuix train wreck rolls on, Rubinsztein’s serial optimism has only ramped up. After reporting a loss for the year, he wrote in a letter to staff: “We have a big, exciting FY23 ahead of us, and I’m incredibly energised by the results that we’re already seeing from our efforts to execute excellently and return Nuix to strong growth.”
His optimism turned to tone deaf on Saturday when he took to LinkedIn and had a rant about Qantas and its frequent flyer program. “The one asset that has depreciated more than any other in my personal portfolio is the value of my frequent flyer points,” he lamented.
“Three years ago the points were worth possibly 3-6 times more than they are today (my guess based on how many points it cost to book an international classic rewards ticket combined with the lack of availability of these tickets).“I do acknowledge that airlines have had an incredibly difficult time during COVID, and it was a super tough leadership challenge ... However, I still have these questions: are the schemes being regulated? What obligations does Qantas have to maintain value to these points?”
Shareholders who bought into the Nuix float at $5.31 – or, even worse, bought at $11.86 – compared with its current 72¢ a share, have a lot more to complain about.
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