[Nick Hargrave]

Despite the success of the action at Bidstack in reducing the board and related costs, the company is yet to deliver on its improved investor communication commitments. While understanding it is August and they have committed to a September investor presentation, the lack of actual share price appreciation (the ultimate goal) is the result of continued silence from the company where investor trust remains thin. Investors await the terms of the announced CLN while the company continues its silence on operational progress. The Azerion dispute, unfortunately, is unlikely to generate news much before the end of the year in the absence of a settlement.

We were disappointed with how the board handled the EGM requisition and even the communication of the agreement to withdraw it. The EGM requisition and the action taken represented excellent opportunities for positive news stories. Firstly, with the company eventually agreeing to essentially all of the requests, they could (and should) have agreed to them in private without the requisition becoming public and presented it as a proactive board decision to streamline the company rather than it look like it was ‘forced’ upon them. Even after the requisition was public and they agreed to the actions, their announcement was drab and factual when it could, again, have been positioned as a positive news story of investor engagement and future upside. I had even provided an outline of what that communication could look like and offered a positive quote from the requisitioners that could have locked in a positive shareholder narrative.

Following the AGM I had the opportunity to sit down with the CEO, James Draper, to discuss these points and how I felt he wasn’t getting good advice from his board. The continued silence, however, suggests that he and the board have still not realised what they need to do to change the current narrative. We are, of course, monitoring the situation carefully and are expecting at least the September investor presentation to be scheduled shortly. The quality and impact of that presentation will determine whether additional action needs to be taken.

Topic

[Nick Hargrave]

Following the news that the company has gone into administration and the management team have acquired the assets for themselves, the below is my letter of concern on the conduct of the directors to the administrators in the first instance. I expect to send this directly to the Insolvency Service shortly and to also submit a complaint to the ICAEW, Alvarez & Marsal’s regulator.

Dear My Berkovi and Mr Firmin

Per your duty to report to The Secretary of State, please find below concerns over the conduct of the directors of Bidstack Group plc (“Bidstack”), specifically David Reeves, James Draper, Lisa Hau, Douglas Lowther, Bryan Neider and Donald Stewart.

These concerns will shortly be shared directly with the Insolvency Service, and I am also preparing a complaint to the ICAEW about your conduct in relation to the pre-pack administration of Bidstack.

Summary of facts

30-Sep-19 interim results announcement
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/interim-results-for-the-six-months-ended-30-june/5529758
Statement by Donald Stewart – “As I anticipated almost six months ago, the Board continues to expect the Group to be cash flow negative in the second half of 2019 but believes that market expectations for 2019 revenues remain achievable, revenues are expected to grow significantly in 2020 propelling the Group towards material profitability in 2021.”
At that time, the market expectations were £5.9m revenue for 2019.

28-Oct-19 – Director dealings
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/directors-dealings/5887781
James Draper sold £300,000 of shares in Bidstack.

18-Dec-19 – Trading update
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/trading-update/5838748
Statement that “While all of the Company’s revenues for 2019 are expected to derive from programmatic advertising spend, which is growing month on month, they are not expected to be significant.”

17-Dec-21 – Trading update
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/trading-update/6877537
Secures guaranteed minimum revenue contract of US$30m with Azerion.

5-Oct-22 – Launches £10m equity placing
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/-10m-placing-subscription-abb-rex-retail-offer/7248150

26-Oct-22 – Strategy update
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/strategy-update/7158809

28-Oct-22 – Update re press commentary
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/update-re-press-commentary/7204590
“Further to the Company’s strategy update to the market on 26 October 2022, the Board notes recent press commentary regarding a private communication by the Company with certain investors concerning an email received from Azerion”

21-Feb-23 – District Court of Amsterdam
https://uitspraken.rechtspraak.nl/details?id=ECLI:NL:RBAMS:2023:567&showbutton=true&keyword=bidstack&idx=2
Filing highlights that issues with the Azerion partnership were discussed in May

29-Sep-23 – Proposed new commercial partnership
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/proposed-new-commercial-partnership-/7785502
“VST would pay Bidstack a licence fee of £1.5m (two equal instalments of £0.75m paid quarterly in advance);
● Bidstack would provide certain support services to VST in consideration of a quarterly service fee of £45,000; and
● Bidstack would capture upside of the growth potential through retaining a revenue share of 70 per cent”

18-Oct-23 – CLN with Irdeto
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/proposed-cln-share-reorganisation-and-vst-update/7824933

22-Dec-23 – Settlement with Azerion
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/settlement-new-commercial-partnership-azerion/7958008
“A total payment of EUR 3 million will be made by Azerion”

5-Feb-24 – update on loan with Irdeto
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/update-on-cln-financial-update-strategic-review/8020803

11-Mar-24 – Intention to appoint adminstrators
https://www.investegate.co.uk/announcement/rns/bidstack-group–bids/intention-to-appoint-administrators-suspension-/8079713
“funding alternatives explored as part of the strategic review, which included exploring a sale of the Company’s assets, have so far not produced any tangible solvent offers, despite a concerted effort by the Company supported by Alvarez & Marsal Europe LLP which approached upwards of 200 potential buyers of the Group’s business and assets”

22-Mar-24 – LinkedIn announcement that management team have acquired Bidstack assets out of administration
https://www.linkedin.com/pulse/acquisition-bidstack-ltd-all-operating-subsidiaries-bidstack-rwzhe/?trackingId=8NzbsQs4TbaD6yQqyXDKPA%3D%3D
The management, namely James Draper and Lisa Hau, have been quickly and diligently deleting comments from shareholders expressing their shock at the pride they are taking in acquiring assets cheaply out of administration after their actions drove the company into administration. James Draper and Lisa Hau have also been blocking anyone that has made such comments. On that basis, the post is included in its entirety here given the likelihood that they delete their posts ahead of potential legal action and complaints against them.

“The executive team of Bidstack is happy to share the news of their acquisition of Bidstack Limited and all the operating entities of the Group, from the administrators of Bidstack Group PLC (in administration). The deal sees James Draper, Founder & CEO, and the executive team of Bidstack Ltd become significant majority shareholders.
All contracts and client relationships continue within the new ownership structure, safeguarding jobs for the UK and European-based staff.
Bidstack, the multi award-winning in-game middleware technology provider, that initially set about bringing programmatic advertising revenue to the most renowned sports gaming franchises in the world, has diversified into a broader offering taking advantage of the most advanced off-engine content management system in gaming.
Following the announcement of a partnership with the Washington Commanders, where the NFL franchise was the first ever sports team to utilise a platform to control advertising within their virtual stadium, across official NFL games, from multiple studios and developers, the management team has been focusing on sports rights holders as a key customer type.
The executive team has the support of the world’s leading rights-holder professionals in the sports industry. It will continue to execute from its position as the leading technology for the sports industry, for fan engagement and brand activations, in video games.
The executive management consists of James Draper continuing as Chief Executive Officer, with Lisa Hau stepping up to Chief Financial Officer, Dave Garvey continuing as Chief Legal Officer, Will Stewart moving to Chief Product Officer and Daniel Barrigas to Chief Technology Officer.
James Draper, Founder & CEO said:
“The acquisition is a pivotal moment for the next phase of growth for the business. Our technology is at the forefront of sports technology and I couldn’t be more excited. I am proud that we are able to reward our ambitious and industry pioneering team and have them as shareholders alongside myself.”
“I want to thank the staff and customers for standing by us during this strategic review, which has obviously been an uncertain period. For all of our customers to have stood strong alongside us is testament to the relationships we’ve built over the years, as well as the incredible staff we have here who have fostered those connections.”
“The company can now focus on the enormous potential we have, to enable sports teams to get closer to their fans and improve the player experience from bringing their virtual IP to life, with real-time messaging, rewards and engagements.”
“Thank you to the management team who have invested to protect the incredible work our talented group has produced. It’s extremely motivating to see the unwavering belief we collectively have in our vision and product. Sadly, the public market is an uncertain place currently and it’s a challenging environment for growth businesses such as ours.”
“The interest and support we’ve had from some of the leading players in the sports industry has given our team great confidence and motivation as we work with some of the world’s largest sporting franchises and leagues.”
“Thank you to everyone’s support and to our Board of Directors, who have assisted myself and management throughout.””

Reasonable interpretation of facts

The above is just a sample of the actions of directors that have contravened their fiduciary duties over the last 5 years.

In Sep-19 the directors stated they expected to achieve market expectations and James Draper sold £300,000 of shares shortly thereafter at the end of Oct-19. Less than 2 months later the company issued a profit warning stating that revenues would be virtually nil. This is not a small miss from the £5.9m market expectations and it is not reasonable to assume that James Draper and Donald Stewart were not aware of information that would lead them to believe that market expectations were inaccurate at the time that the share sale was sanctioned. There is clearly a case of insider trading to be investigated.

In 2022 the directors were forced to admit, in response to press speculation following a leak, that they communicated privately with certain shareholders of material information in relation to the Azerion agreement. This was a clear breach of the duties to publish material information to all shareholders and amounts to market abuse.

Additionally, the Dutch court filing highlights that the directors were clearly aware that the agreement was in jeopardy ahead of the Oct-22 equity placing and so their disclosures to current and potential investors must have been misleading.

These incidents highlight a pattern of behaviour of the directors breaching their fiduciary duties and their regulatory obligations even before the recent events that have resulted in Bidstack’s administration.

In Oct-23 the directors reneged on a partnership agreement with VST that would have ensured that Bidstack remained solvent and due to receive 70% of the revenue from future licensing agreements. Instead, the directors accepted an offer of funding from Irdeto without any ensuring certainty of funds and Irdeto subsequently reneged on their proposal. These are not the actions of qualified, experienced directors discharging their duties with due care.

On 22-Mar-24 Bidstack, James Draper and Lisa Hau announced they were “proud” to have acquired the assets out of administration. They state that there is “enormous potential”, and they “have the support of leading players in the industry”. Based on these assertions, it is not reasonable to believe that you contacted 200 buyers with no interest in acquiring these assets at fair value. I note that Bidstack’s closest competitor Anzu raised $48m in funding in Jun-23 (https://www.anzu.io/news/funding-anzu-23), highlighting the investment appetite in the space.

If the management and directors believe in the enormous potential which, by virtue of the fact that they have acquired the assets and are seen to be very happy about it on social media, they must do, why did the directors make no attempt to communicate this to the public markets and their shareholders to support their share price and potential funding options?

An investor presentation was announced for Sep-23 and never happened. The company recently received EUR3m in funds from Azerion that should have allowed the continued operation of the company for some time in the absence of mismanagement. With the “enormous potential” of the business it can only be concluded that the sale of the assets to the management was a pre-determined outcome that the directors desired, to the detriment of the shareholders that have provided tens of millions in funding.

I believe that the above summary and reasonable interpretation of facts highlights a pattern of behaviour and concerns over the conduct of directors before and during the administration process, facilitated by you, that should be fully investigated. It is my view that the directors have clearly and flagrantly breached their fiduciary duties causing significant financial damage to shareholders.

Their actions resulted in Bidstack going into administration only for the assets to be acquired cheaply by management in a process that looks pre-determined to achieve that outcome.

I believe that your conduct as administrators has been either complicity in achieving this outcome for the benefit of management or that directors were not co-operative with your process in order to achieve this outcome, in breach of their fiduciary duties. In that instance, I expect that you have already reported their conduct with a view to their disqualification as directors.

I trust that your report to The Secretary of State on the conduct of the Directors will include a full investigation of these facts and the actions taken by the directors. As noted, I intend to make a complaint about your conduct to the ICAEW shortly.

[Nick Hargrave]

We recently had correspondence with the Chairman to understand when they might follow up on the promised investor presentation to avoid having to organise another EGM. He responded that progress is being made and I followed up with the below email to try to encourage concrete action which has been noted.

“I and many other shareholders have shown a great deal of patience over a number of years. There is no thought of an EGM for a general update but to propose resolutions, specifically the removal of James and Lisa as directors for the reasons previously highlighted. In the spirit of always trying to be constructive I offer some thoughts on what I believe would go a long way to keeping investors calm. I hope that you will take these as the feedback of supportive shareholders and not an attempt to teach you to suck eggs!

The Azerion settlement is undoubtedly a good result and a new commercial agreement with them was a positive surprise for everyone. However, investors don’t fully understand the implications of the EUR3m cash. There is confusion as to whether it is a lump sum to be received imminently (ahead of the new commercial agreement kicking in) or in tranches over a period of time. This is obviously relevant for the other key confusion relating to the funding from Irdeto. With the CLN and share consolidation announced in mid-Oct and no announcements since then, it is unclear whether the first £0.6m tranche was drawn down and whether any further tranches will now need to be drawn following the Azerion settlement. While the share consolidation has no impact on value, confusion around whether it will still happen (and when) muddies the waters for investors who perhaps don’t all fully appreciate the mechanics of it. You may well have seen that when the announcement was made, many investors believed it was a dilution and not a consolidation. It is difficult for investors to determine a reasonable valuation when they can’t make a reasonably simple determination of likely further dilution.

The question of further dilution then leads to the current run rate cash burn. In June of last year, it was stated that run rate cash costs would be reduced by 40%. With the Venatus agreement it is assumed that, in addition, the entire US team payroll has reduced to zero as well. In H1 last year, reported cash costs were c.£6m, equating to £12m for the full year. A 40% reduction takes that to c.£7m and then perhaps a further £1m saving comes from US headcount reductions to leave the company with a £6m cost base? That figure may now be even lower? While engaged shareholders can make these estimates, the market at large needs the numbers spoon feeding to them as it has little time for anything beyond the obvious.

Everyone understands confidentiality with clients, but investors don’t understand why clarity can’t be provided around the resellers (Venatus, Azerion, Atplay and others) and the revenue / gross margin model of these and potential licensing agreements. With high margin licensing revenues and 30% gross margins (?) through advertising resellers there is an achievable revenue number that shareholders can calculate to take a view on the breakeven point. Investors don’t need the finer details of individual clients if this simple maths can be explained clearly, which it has not yet been.

I look forward to a company presentation and hope that it will be presented by management (perhaps on Investor Meet) with a Q&A. I fear simply publishing a corporate presentation without investors being able to see and question the CEO will only exacerbate the disillusionment with management. Simply the announcement of a date for this will create positive sentiment from shareholders still waiting for this from September. There is also expectation of a tangible outcome from the review of board roles (including the advisory board) and advisors that was announced. Confirmation that the VST transaction has completely ‘gone away’ would also be useful to allow investors to focus on the core business.

It remains a concern that shareholder input and feedback is regarded as a governance issue and not an opportunity. Governance is the job description of the board. If someone is consistently raising concerns, leaders don’t ignore them and allow those concerns to become the generally accepted narrative. They bring them in, listen to their unvarnished views and then give them the job of fixing the issues. To succeed, that person must instantly switch to being a cheerleading advocate.

I genuinely believe investor trust and confidence can be easily restored with some simple, effective communications to provide clarity. All of the above can be answered and addressed today. Shareholders struggle to understand why there is a continuing reluctance to be transparent and engage when it is so easy. In the absence of clarity or information, it is human nature to fill the void with speculation and negativity. Surely everyone agrees that an improved valuation is beneficial for the company and provides options”.

[Author]

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