The company autopsy reveals Powa’s ultimate controlling company raised £143.94 million ($203.7 million) in debt and equity funding from 2013 onwards, as the company was valued on paper at $2.7 billion. But only the most senior secured debtors are likely to ever see any money returned. Even those will get only a fraction of what they lent back. Equity investors will get nothing – according to an article in Business Insider.
Here are the key points and new revelations from Deloitte’s report:
- Powa’s main trading company lost £16.6 million ($23.5 million) on revenue of £667,000 ($944,000) in 2013; lost £38.5 million ($54.5 million) on revenue of £1 million ($1.4 million) in 2014; and lost £31.8 million ($45 million) on revenue of £4.8 million ($6.8 million) in 2015. However, it was profitable on a gross basis in 2014 & 2015;
- Powa’s controlling group company raised £143.94 million ($203.7 million) in funding, both debt and equity, since 2013. When Administrators were appointed, it had just £250,000 ($353,800) in the bank;
- Staffing costs hit £24.8 million ($35.1 million) in 2015. Property rental was running around £2.4 million ($3.4 million) annually;
- Revenue came from PowaWeb and PowaPOS, not PowaTag (confirming Business Insider’s previous reporting);
- The bulk of the 1,200 brands PowaTag claimed to have signed up had only signed non-binding letters of intention, again confirming BI’s previous reporting. Deloitte says only around 100 merchants actually signed formal contracts;
- PowaWeb, one of the company’s three main divisions, was sold for £200,000 ($283,000) by administrators;
- Powa’s main investor, Boston’s Wellington Management, was behind the acquisition of PowaTag, another of the divisions. Wellington is a backer of Bidco, the vehicle that brought PowaTag out of administration;
- Deloitte is “in discussion with potential purchasers for the Companies’ remaining PowaPOS business”;
- “There is no prospect of a return to shareholders of the Companies”;
- “There is no prospect of any funds being returned to unsecured creditors “;
- Secured creditors, Wellington Management in its various guises, lent Powa £70.8 million ($100 million) but “will not be repaid in full”;
- Aside from the £70.8 million in loans, Wellington invested around £67 million ($96 million) in equity;
- Intergroup debt increased as the years went on as the controlling company lent more and more to subsidiaries to fund operations. This ran down cash reserves from £16 million ($22.6 million) in 2014 to £755,000 ($1 million) in 2015;
- As a results of these loans and investments to subsidiaries the group company was “on the face of it, balance sheet solvent, [but] this was on the basis of investments in and receivables due from broader Group companies, the recovery in respect of which may be minimal”;
- Deloitte says “no value was prescribed to other intangible assets, such as intellectual property and capitalised development costs as these were fully amortised”;
- In early 2015 Powa implemented a redundancy programme costing £3 million ($4.25 million);
- Around 110 former employees are making claims against the company totalling around £150,000 ($212,200), including claims for unpaid wages;
- The crunch came for Powa in December, when $60 million (£42.4 million) of the Secured Creditor’s debt came up for repayment. Deloitte says: “The Companies sought to renegotiate and extend repayment terms, but mounting creditor pressure with threats of statutory demands, including a winding up petition against LTD led to the Secured Creditors taking steps to place PLC into administration protection. Shortly after, LTD was also placed into administration”;
- Deloitte is investigating the conduct of directors, but this is at the moment simply routine;
- Powa’s founder and former CEO Dan Wagner was paid £1,155 ($1,634) “for certain items of boardroom equipment and furniture.”
In short, Powa grew too fast and overreached itself, running up a huge cost base while revenues were still minimal. Deloitte confirms that the business “was in essence ‘pre-revenue'” by the time it went under, but had offices in Hong Kong, Germany, France, and Italy, and employed around 300 people worldwide.
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