eProcurement firm Proactis has an unhappy (largest) shareholder

Just before Christmas, we saw some excitement around Proactis, the Yorkshire (UK) based eProcurement software provider.  (We didn’t have a chance to follow it up properly before the holiday, so we’re coming back to it now).

The firm’s biggest shareholder, Isis Equity Partners, a Private Equity firm, issued this statement on December 13th.

Here's the text of the Isis letter:

"ISIS Equity Partners LLP ("ISIS")

Statement re Proactis Holdings plc ("Proactis" or "the Company")

Prior to the Annual General Meeting of the Company, to be held on 17 December 2012, ISIS wishes to make all of its fellow shareholders aware that it has recently written to the Board of Proactis in order to:

1. Express concern at the performance of the Company since Admission in 2006, during which period the share price has fallen from 43p to 25.75p.

2. Request that the Board clearly articulate to all shareholders its strategy for creating shareholder value

3. Request that the Company formally appoint corporate finance advisers to conduct a strategic review to assess whether shareholders would see better value through a sale or merger of the business than through remaining as an independent public company

4. Request that in line with current best practice under the UK Corporate Governance Code, all directors should seek re-election annually

ISIS is in continuing discussions with the company on these matters.

As at 13 December 2012 ISIS held 8,300,200 ordinary shares in Proactis, representing 26.28 % of the company's issued share capital".

The Board meeting appears to have gone ahead without any further excitement, and the company has not responded publically to Isis. This may be a storm in a teacup, and there’s no reason for customers or potential customers of Proactis to worry at the moment – indeed, their recent results showed some improvement from the previous year’s performance.

But we’re hoping to speak to Proactis directly in the near future, and understand whether this situation does have any implications for the firm and their customer base. Watch this space.

 

Voices (5)

  1. Jamie Myers:

    Sounds like a marriage in the making Ronald? Why not call them?

  2. Ronald Duncan:

    We are also on AIM with proactis, and their board has done a reasonable job. They have performed a lot better than we did post IPO, and I can tell you that when the City gets the knives out it is not a pleasant experience.

    It happened much more quickly for us and our CEO, Lyn Duncan was moved off to a business development role within 10 months of float and both our sales director and marketing director were fired. Lyn and I would have also been fired but for there being two of us on the board and unanimity was required to remove a director.

    Lyn started to go at 50p and it was 20p by the time the restructuring was announced. It was only when we got down to 3p, and the cash started to run out that the board issues resolved themselves and we could start to focus on turning around the company rather than selling it for nothing.

    Unfortunately, it looks like Proactis are in a similar state to where we were with both sides having roughly equal shareholdings and so are unable to just call and EGM and eject the other side, which makes for an unpleasant war of attrition. ICIS are clearly looking for shareholders to support them, and they did not have enough support at the time of sending out the communication to call an EGM.

    This combined with a founder departing suggests that they are not having a good time. We are actually reasonably complementary to Proactis since our ecommerce marketplace provides the accurate content required to make their purchasing system work best. There is an overlap since we also have a purchasing system, however we took the strategic decision a long time ago to partner with the finance systems rather than actively competing with the finance system purchasing modules, which is Proactis’s core business.

    Hopefully, Proactis will be able to resolve things with their major shareholder, and get back to focusing on the business.

  3. David Wash:

    I have a (very) small stake in this company so was interested when a colleague pointed me at this thread this morning. Here’s my take on some of Bob’s comments above…

    – None of the directors are truly independent. The non exec Chairman (Alan Aubrey) and Rodney Potts are both shareholders and (one could reasonably expect) they make decisions for their own benefit. The nominated “independent” director is Berenice Smith (former FD of Leeds University) who would appear to serve (or have served) on numerous boards of companies led, owned or invested in by Mr Aubrey since the time when she was FD of Leeds University and awarded Aubrey’s company (IP Group) a lucrative contract for technology commercialisation. (Not suggesting there is anything ‘wrong’ with that in itself, but from my perspective as a shareholder it does worry me that this is a particularly “close” bunch of people which is contrary to the spirit of AIM (if not quite the rules of AIM).

    – Mr Potts is not the largest shareholder, ISIS is, according the company’s web-site. But seemingly ISIS do not have a seat on the board whereas Mr Potts does. Strange in itself? Why would the largest shareholder not be entitled to a seat on the board when the second largest shareholder is? Or at least why would they not be invited along out of courtesy under such circumstances? As a minority shareholder I can tell you that their investment in shareholder communications would seem to be ‘nil’.

    – “The company’s finance director appears to work on a part time contract basis”…. true, but every Proactis director, even the executive directors who are supposed to be steering the ship full time, have roles as directors of other unrelated companies. The executive directors are fairly anonymous compared to the principle officers of other companies in this sector of a similar size – you never see them quoted in this forum or other industry press and I cannot recall the last time one of them spoke at an industry event. If they are not there day-to-day, not fully engaged in the industry and (according to the ISIS letter) not driving the strategy at board/investor level then what are they doing to justify their salaries (which are not insignificant by the way)?

    “The company looks to have sufficient cash and is moving its business model to a Saas model which gives greater recurring revenues.” … The company has modified its revenue reporting policies several times in recent years which clouds our ability to compare trends in performance. The only real metric we can use is “new wins” and this number has been decreasing steadily for the last few years. I have made several requests for comparable information but have been ignored – admittedly not for 2-3 years now though.

    “It therefore might well have a viable, sustainable business model but has undoubtedly disappointed against the expectations at the IPO.” … I cannot see how the company has invested any of the cash it raised on IPO other than providing additional working capital. The expectations set on IPO (I have the prospectus) look perfectly reasonable against the actual performance of market peers since that time but the execution seems to be lacking.

    Also I think they raised much less than £9m… more like ~£4m from memory, but didn’t check that part.

    So why do I keep my stock…? the technology is still excellent, the market is strong (judging by others’ performance), and therefore the time may well come for somebody to come in and buy the company and turn it around. Oh yes, and having bought when the price was £1.13 I just cannot bring myself to sell at the 25p level !!

  4. Bob Beveridge:

    The IPO in 2006 raised £9m from two shareholders, ISIS and Artemis. Both are now looking at a loss of 40% over 6 years. It is not at all surprising that they are upset.
    Although Proactis is listed on Aim it is in essence privately controlled – its largest shareholder Mr Potts sits on the board as a ‘non executive’ director but is clearly not independent. The company’s finance director appears to work on a part time contract basis.
    It would be interesting to get first hand from ISIS their rationale and there is a contact named on their announcement.
    The company looks to have sufficient cash and is moving its business model to a Saas model which gives greater recurring revenues. It therefore might well have a viable, sustainable business model but has undoubtedly disappointed against the expectations at the IPO.

  5. Jamie Myers:

    When you put this news alongside their other recent news – that the director credited with creating and developing their products is leaving – I’d contest the suggestion that there’s no reason for customers to worry. If their shareholder is posting such statements then that can only be an appeal for an acquirer to step forward (can’t it?) and if the main innovator is leaving one would question the wisdom of an investment in Proactis technology. Will be interesting to see if they comment.

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