Duncan Mactear of 4Projects has forwarded me an article about [my former employer] BIW Technologies, published recently to subscribers to Megabuyte.com (an “invaluable source of market intelligence for IT companies, their advisers and investors providing in-depth coverage of the corporate and financial affairs of all of the UK’s leading listed and privately owned software & IT services companies”). The article says:
A tough year for BIW
When SaaS vendor to the construction sector BIW Technologies announced that it had refinanced the business in September, the statement talked very positively about the prospects for the company and how it had been performing. CEO Colin Smith is quoted in the press release as saying “despite the downturn, BIW continues to trade very successfully with strong revenue and profits.” However, when we went looking for BIW’s latest accounts at Companies House to see just how strong the revenue and profits were, what we found instead was that BIW Plc, the parent company of BIW Technologies, had been put into administration. Not only was it news to us that BIW Plc had been put into administration but also it was clear from the administrators report that 2009 has been a very difficult year indeed for the company.
How quickly things have changed for BIW; as recently as July 2008, the Telegraph reported that the company was looking to IPO with a valuation of between £30m and £50m. The Administrators report confirms that BIW was indeed looking for investment in early 2008 and, after a few months, issued £3.5m of loan notes but these were redeemable after only one year. The main investor in the loan notes was 20% shareholder Nova Capital and, given that it was highly unlikely that the company was going to generate sufficient cash to pay back these loan notes, Nova must have been confident of some kind of liquidity event before the loan notes fell due.
However, it seems that the credit crunch has had a dramatic impact on trading at BIW. According to press reports, BIW generated a £1m profit on revenues of £7.5m for the year to September 2008 but things got a lot tougher thereafter. The Administrators report says that, in the first half of fiscal 2009, BIW lost a number of customers and that it suffered losses of £0.4m in the eight months to May 2009. It goes on to say that BIW undertook ‘a number of redundancies and cost cutting initiatives’ but none of this was enough to convince any trade buyers, let alone allow for an IPO. Despite this, even as trading was worsening, BIW was keeping up an external appearance that all was well. The FT reported in December that BIW was still aiming to come to the market saying that the company was looking to raise £5m-£15m. Indeed, Finance Director Bill Flind was quoted as saying ‘we’re all ready and raring to go’. Furthermore, the statement announcing the refinancing in September comments that ‘the company continues to trade profitably in 2009’; an assertion which seems at odds with the Administrators report.
When the loan notes came due, the company had no choice but to call in the administrators who then sold the business for £3.5m in a pre-pack deal to Nova Capital who effectively converted their £2.5m of loan notes into equity and paid out the other loan note holders in cash. We’re not sure how much the existing shareholders got to rollover into the new vehicle but we suspect the answer is not very much. The good news is that BIW’s financing issues don’t seem to have affected BIW’s customers and partners. Attenda, for example, which is BIW’s hosting partner, renewed its partnership February.
All of this goes to show that it doesn’t matter how fast you are growing or how brilliantly you are riding the technology wave, recessions impact everyone. Up to now, BIW has been a trail blazer for the UK software sector and cloud computing in particular so we very much hope that is can put 2009 behind it and get back to growth in 2010. But the IPO may have to wait a few years.
Clearly, BIW has suffered, like governments and most businesses, from failing to anticipate the global financial crisis that hit last autumn, and the depth of its impact. Rivals 4Projects and Aconex both managed to instigate and complete their fund-raising moves before the construction market imploded; BIW didn’t.
BIW is not alone in losing customers during the credit crunch, of course. For example, Aconex recently reported the cancellation of projects, particularly in the Middle East, with a corresponding knock-on effect on the company’s order book, and some redundancies. BIW had significant operations in Dubai and was expanding into neighbouring states, and the well-publicised problems at client Nakheel certainly had an impact, particularly in the first three months of 2009. And as can be judged from its news releases, BIW’s clients also included several banks. Once considered blue-chip customers, these clients’ problems also resulted in project cancellations as the financial crisis deepened and banks had to cut back on their property programmes.
BIW’s financial year end is 30 September, so the reported full year results for 2008 (“£1m profit on revenues of £7.5m” – final accounts have yet to be lodged at Companies House) reflect solid growth prior to the start of the current recession. However, unlike rival vendors whose financial years have straddled the recession (eg: Business Collaborator – see last week’s post – has a 31 December year-end; 4Projects’ year-end is 31 March – post), BIW’s 2008-2009 will pretty much cover the whole of the credit crunch. So – unless the downturn extends (I have spoken to people talking bleakly about recovery only in 2011 or even later) – its losses should be concentrated into one financial year, rather than affecting two years’ results.
The September 2009 recapitalisation of BIW Technologies Ltd [about which I was briefed] was preceded by a sobering and painful period of cost-cutting and some redundancies in the first quarter of 2009 as the scale of the industry problems and their impact on BIW became clear [I had little option but to accept statutory redundancy terms, but was happy to re-establish my consultancy business]. Up to this point, BIW’s directors had remained optimistic, hence the FT fund-raising story in December 2008 (mentioned above) and the new deal with Attenda. The comments that ‘the company continues to trade profitably in 2009’ may well depend upon how one uses the term ‘trade’ – perhaps month by month the business is making an operating profit, but its full year figures (which are due in the summer of 2010) may yet reflect the project cancellations, tougher market conditions and restructuring costs?
The article underlines that it was the parent company that was put into administration, not the operating company, BIW Technologies Ltd. Nobody likes to hear of a business reaching this stage, but at least customer and supplier uncertainty was avoided. Instead, the pain was confined to investors and share-holders, which also included directors, staff and, as a founder and very modest shareholder, former employees like me…. I have been a regular recipient of communications from administrator Zolfo Cooper. Disregarding the paper loss that this administration has meant to me personally, and sifting through the legal and accountancy speak, it does seem that the surviving BIW operation will be in a much better financial shape, even if – as Megabuyte.com say – “the IPO may have to wait a few years”.
More importantly, a morale-sapping failure of one of the UK’s leading vendors has been avoided. Back in 2001, when iScraper went bust as the dot.com bubble burst, it was important that businesses like BIW and BuildOnline picked up the pieces to maintain business confidence in the AEC Software-as-a-Service sector as a whole. Eight years later, we are facing a much deeper recession that is affecting more than just technology businesses, and – while some investors, shareholders and employees may have lost out – BIW has at least continued to provide its services to dozens of clients and hundreds of project teams.