By Tim Burrows on Mumbrella (31 Aug, 2019).
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An impossible job at Pureprofile?
If you work with an Englishman of a certain age, you might have heard them use the expression “Do I not like that!?” It’s one of the few times that the interrobang - ‽ - designed for moments demanding both an exclamation mark and a question mark, deserves an outing.
It’s a catchphrase the entered the British psyche thanks to one of the best TV sports documentaries ever made. An Impossible Job followed England soccer manager Graham Taylor during his short-but-disastrous reign attempting (and failing) to qualify for the 1994 World Cup.
Not only did Taylor allow the documentary crew to follow him, but he agreed to wear a radio microphone during what turned out to be disastrous matches.
As a result, it captured anguished exclamations like “Can we not knock it‽” and - when things got particularly bad - “Do I not like that‽”.
Eventually a series of bad refereeing decisions in a match against Holland saw England fail to qualify. In an unusual demonstration of astuteness, Taylor, who passed away a couple of years ago, knew exactly what it meant, with the microphone capturing him telling the fourth official: ”At the end of the day, I get the sack now.” He was right.
But the thing that still fascinated me about the documentary was Taylor’s awareness that he was in a job at which he’d almost certainly fail. Tabloid pressure, unrealistic public expectations and the weight of history made it a virtual certainty. The program’s title came from his own description - while he was still in it - as “an impossible job”.
And there are certain jobs in our industry where the same things apply. The expectation from the outside world is of a high likelihood of failure.
Of course, it doesn’t always come out that way. I always felt that way about Greg Hywood at Fairfax Media. For all the criticism of the company’s troubles there was never a time when there seemed to be a better path. And in the end he delivered a good outcome for shareholders with the takeover deal from Nine.
A new candidate for an impossible job is James Warburton at Seven West Media, who somehow needs to bring down debt, maintain revenues and compete in the ratings, all while finding a deal. Maybe he’ll pull it off.
Nic Jones didn’t. He walked into the impossible job at Pureprofile less than two years ago, and
this week he left.
When he took the helm in 2017, Pureprofile was already deeply troubled. Now it appears to be doomed as an ASX-listed concern.
That’s the thing about impossible jobs. Failure is likely.
For a while, Pureprofile had a real shot at riding the media wave towards intelligent retargeting. As I’ve written about in Best of the Week before, at its centre, Pureprofile was an online survey panel company, but founder Paul Chan had a much bigger vision, to use his panels as a trojan horse to persuade consumers to share more data about themselves.
But the messy realities of business got in the way, particularly once it listed on the ASX in 2015.
For a while, Pureprofile was worth $80m. When the market closed yesterday, it was worth just $1.2m.
Bad acquisitions led to disgruntled shareholders, boardroom wars and huge debts that look impossible to service.
It all started out promisingly, with Pureprofile an early player in what was to become the lucrative niche of online research panels. It was a lot cheaper for marketers to ask a question of an online panel rather than pay market researchers to stand in shopping centres holding clipboards.
Ahead of the float on the ASX, Pureprofile did the first of a number of deals that went bad. It bought programmatic operation Sparc.
The plan made sense - combine the company’s (anonymised) knowledge of its panel of consumers with the ability to target them programmatically. But a flaw in that is that there are only so many people who’d volunteer to join a panel, even when being paid a few cents per survey for doing so. And they’re probably a certain type of person too.
Then in 2016 came another bad deal. Pureprofile bought lead generation company Cohort for an eventual $25m.
Then the leadership began to change.
Andrew Edwards came in as chairman. Chan was demoted to chief innovation officer, and left within days of the arrival of Jones.
By the time Jones arrived, it was looking like an impossible job. The deals for Sparc and Cohort had been done, but were yet to be unwound, revenues were falling, and the board was unstable.The company was already writing down the value of its assets. (Funnily enough, that theme will also arise with Trimantium Growthops, when I come to them later.)
The company was in financial trouble. It couldn’t agree terms with CommBank to extend its debt facility - which was a problem, because it still owed money to the vendors of Cohort.
Instead, the company signed for an opaque $10m loan facility with what it described as “a global funds manager”, with a fixed interest rate of a whopping 9.5%. And it immediately drew on the full $10m.
Then things got bloodier.
Oceania Capital Partners, the people who sold Cohort to Pure Profile for $25m+ back in 2016, wanted Edwards fired as chairman. They went public, announcing this to the ASX.
OCP had received shares in Pureprofile as part of the Cohort sale, so were unhappy with the falling share price, and the company’s failure to disclose the loss of various key personnel in the previous months, it said.
OCP ran through a list of management departures, including the company’s chief financial officer and its new head of finance.
Not to mention that Pureprofile had not paid the last $1.4m of earnout on its purchase of Cohort.
The OCP statement was also critical of the “onerous” terms of the loan facility.
Meanwhile, Pureprofile’s board argued that OCP were the bad guys, telling the ASX that it had been misled about the health of Cohort when it bought the company.
Then, a deal. Edwards survived, and OCP was given a seat on the board.
A few months later, Jones sold Cohort to a call centre company for just half a million bucks.
Meanwhile, in the background was another time bomb. The loan facility OCP had complained about - signed just before Jones joined - did indeed have onerous terms.
Finally, nearly four months after signing the deal, Pureprofile gave more details to the ASX.
The company making the loan was Lucerne Finance.
And if Pureprofile was ever sold, Lucerne would get pretty much all of the spoils.
If the company was acquired, recapitalised, or there was a change of control, Lucerne would be entitled to get all of its $13m back. (The debt had already gone up from $10m.) But there was far, far more - a “repayment fee” would become due.
There was a complicated formula to calculate the repayment fee.
If the company was sold for up to $5m, Lucerne would get 97.5% of that money, minus $1m. Or in other words, if the company sold for $5m, the shareholders would be left with just $1.1m of the proceeds.
If the company went for between $5m and $10m, Lucerne would get 95% of the money, minus $1m.
And in the unlikely event it sold for more than $15m, Lucerne would get 85% of the money, minus $1m.
That’s quite some repayment fee.
And $10m of the loan was due to expire just four months from now.
It meant there was no point in anybody rational buying shares in the company.
Away from the board room, one of Jones’ first high profile hires, head of revenue Ben Sharp, quit after just seven months.
The news of Sharp’s departure emerged in a weird way, as I interviewed Jones for the Mumbrellacast. When I asked him to talk through his key team members, he made no mention of Sharp. I asked a follow-up question and he finally volunteered that Sharp had left.
Two weeks ago, Pureprofile issued an ASX update saying it had made a loss of $700,000 and was now $16.5m in debt, after it increased its debt facility by $3m throughout the year, and took out an additional bridging loan of $2.6m.
The bridging loan - at an eye-watering annual interest rate of 20%, compounded monthly - was due to expire in about six weeks time.
Then, this week, another update to the ASX.
Jones was out and chairman Edwards would now be running the company.
Jones looks well off out of it. He didn’t create the mess, that was done at boardroom level.
And depending how you measure success in an impossible job, maybe he pulled it off. Although loss-making, thanks to the Cohort and Sparc sales, Pureprofile’s core business no longer seems to be bleeding. It’s last big problem now is its debt.
In an interesting piece of timing, Lucerne’s head of funds management Aaryn Nania has joined the company’s board in Jones’ stead.
And Lucerne has agreed to remove the “payment fee” formula which presumably made it all but certain that no sane shareholder would have agreed to any takeover in the first place.
But it comes at a big price. The interest rate on the $15.6m owed is 20%, and it must be paid on the loan’s new maturity date, which is 13 months from now.
Given that the company no longer has a CEO and made a loss for all but two of the last 12 quarters, I can’t see how it will possibly be able to make that payment, unless there’s a miraculous turnaround.
As I said further up, Pureprofile looks doomed as an ASX entity. I’ve a hunch that come October 2020, it will no longer be listed, and Lucerne might just be the new owner.
(End Quote)Gw
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