Monday, 2 February 2009

Update on e-procurement suppliers

Following on from my post on e-procurement – supplier take-up is still the problem I’ve been asked what has happened to the pure-play e-procurement suppliers to the UK Public Sector that I commented on last year in my post After Anite and IBS – where’s the next big acquisition?

From what I’ve seen, the situation for those companies, Proactis and @UK, in the UK Public sector has deteriorated over the past year. I can but repeat my assessment of last year “My own belief is that pure-play e-procurement companies are unlikely to survive long term – no matter how good their products, in the longer term most customers will look to buy procurement systems along with their financial and/or other systems.”

This seems to have been borne out by the Public Sector procurements of new systems over the past year - limited in number, they have typically resulted in the purchase of a financial management information system with its own e-procurement or spend control functionality. Without firm partnerships with those FMIS suppliers, I fear for both suppliers in that market.


Since its float on AIM back in 2006, Proactis has seen its share price decline 90% from a peak of 109p down to it current 10.5p, valuing the company at just £3.2M, under half of last year’s reported revenue of £6.6M (when the company reported a £0.5M loss after large one-off costs for restructuring following (in)digestion of its acquisitions).

With its move into other markets, and international coverage, Proactis will, I believe, survive and, once we move into a more positive financial environment, should thrive as companies look to replace outdated back office systems. Whilst they do sell directly, they have focussed on building their network of accredited resellers, and have diversified their offerings away from just pure e-procurement and spend control. Although loss-making, they are cash generative and do not, apparently, have to go to their bank to refinance any loans.

However, as a company that came to the market with great expectations, Proactis has suffered from poor investor confidence through the unexpected profits warning last year, and it market cap now sits at a level equal to just its recurring revenue, and its shares on a large bid/offer split of 8/13p. Apparently now unloved on AIM, where will Proactis go?

As I noted last year, I believe that there is a strong chance that Proactis will be acquired by a bigger player (see my
post from last year for the names of some potential candidates). Proactis should give a trading update when they announce their interim results around the mid- to end- March – it will be interesting to see how they’ve survived the current credit crunch.....


It will be even more interesting to see how (if?) @UK is surviving. By my calculation, unless it’s seen a big improvement, its continuing cash burn will mean that this runs out of cash sometime later this year. It appears to have done well to win an OGC buying solutions framework for data manipulation and spend analysis last year, but is only one of 8 successful bidders, and it’s difficult to see how much revenue will flow @UK’s way.

As I noted in my
post from last year, I don’t think @UK’s business model will fly – it’s been constantly loss-making since its formation, losing £2.37M in the last full year, and reporting a £0.67M loss at last interims, on revenue declining by 7% to £1.08M, and burning £0.6M in the six month period.

With only c £1.2M cash in the bank at 30 June 2008, @UK needs to do something pretty drastic to survive long-term. I’m not sure that any of the major players will be interested in buying a company with such minimal revenue and large annual losses – the only possible purchaser might be a company running a marketplace that could integrate the @UK business at minimal extra cost.

Perhaps @UK will back out of its e-procurement market (or try to sell it?) and concentrate on just its company formations business, which would appear to be profitable. Last year saw the ousting of both CEO (the very competent and experienced Grant Oliver) and Chairman (Bernard Fisher), and the forcing through of an ability to raise £500k by a highly-dilutive share placement (not open to all shareholders) that will triple the shares in circulation and value the company at just £840k.

Rumours are also circulating that attempts to purchase the company formations arm have been rebuffed; and that now the business appears to be back in the hands of the original founders, it will de-list and split into two separate companies – the e-procurement bit (to be sold off or closed?) and the company formations bit.

Even with an additional £500k, the current rate of cash burn sees the company run out of cash around the year-end - so I’m sure that 2009 will be a crunch year for @UK – it will be interesting to see how it all pans out.....

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