The Early Days
In early to mid 2007, Catcha Media, the founder of the iProperty Group, had negotiated and acquired (or entered into agreements to acquire) iproperty.com.my from Ailligent Sdn Bhd in Malaysia, PropertyForce.com in the Philippines, real.co.th in Thailand and Info-Tools Pte Ltd in Singapore.
In mid 2007, IPGA Limited (now the iProperty Group) and its subsidiary iProperty Group Asia Pty Ltd were formed as the vehicle for acquiring property portals and associated businesses across South East Asia.
IPGA was then floated on the Australian Stock Exchange in September 2007 to fund these and future acquisitions. The float raised US$7.5m on a post money valuation of US$25m.
At float, the iProperty Group had (or was soon to have) the following operations in Malaysia, Singapore, Philippines and Thailand:
Interestingly (or perhaps strangely), the brand that was going to be used for its consumer sites in Singapore, the Philippines, and Thailand was ProperlyForce rather than iProperty.
Following the float, the iProperty Group rapidly expanded through acquisition.
At the heart of it, the iProperty Group is not the result of organic growth (i.e. building portals from scratch) but the result of the acquisition of strategic assets throughout the region.
In spite of the raft of announcements of new acquisitions and new products, the market lost interest (and faith) in the stock. In just under two years, the share price had plummeted from 25c to a low of around 6c in March 2009. This valued the company at just US$6m.
[caption id="attachment_607" align="aligncenter" width="500"] IPP Share Price 2007 to 2009[/caption]
Quarterly cash flow statements showed that the company was continuing to lose money and in 2009 it was on track to deliver similar revenues to 2008. In fact, 2008 revenues were $4.1 million and 2009 revenues were $4.0 million.
It was clear that the company needed to get itself sorted out quickly or be in danger of a great idea that failed to live up to its potential.
So What Went Wrong?
Before looking at what actions were put in place to turn around the company, we should look at what really went wrong. It is through a post mortem analysis that we were able to put in place the right corrective actions to drive the company forward.
Acquisitions are Easier than Operations
Acquiring companies is actually relatively easy. I have lost track of how many acquisitions and investments I've been involved in but it would have to be north of 30 different companies over the last 10+ years.
When you acquire a company, you often enter the transaction with the belief (or perhaps the hope) that you were able to create far greater value than the current operators. Therefore you are focused on getting the deal done because of the bigger picture.
Quite often you spend most of your time looking at the financial, legal and operational aspects of the business from a historical perspective rather than a future operations perspective making sure what you are buying hasn't had any problems and that you are getting what you have been promised. However there is often very little consideration given to how you are going to run these businesses especially in a different environment.
When iProperty went on its acquisition spree, it acquired a wide range of businesses. They had property portals operating in Singapore, Malaysia, the Philippines, India, Hong Kong, and Taiwan. They also had print publications, a software business, and an exhibitions business.
Having mostly been acquired, each worked in a different way, had a different culture, were often tied to the founder, and even operated in different languages.
To make this motley crew operate as a cohesive group market leading businesses is extremely challenging. iProperty clearly struggled in this challenge during the 2007 – 2009 timeframe. Many of the acquisitions didn’t live up to their promise and management was probably stretched too far to get deep enough into those businesses that needed help.
Having acquired these businesses, the company set about the centralisation of many operations. iProperty tried to move technology to one platform, centralize accounts, and operate product development, consumer marketing, and industry marketing from its Malaysian HQ.
Clearly moving to one technology platform is challenging. It requires a lot of planning and always takes significantly longer than expected.
The centralized control of product development, consumer and industry market from Malaysia didn’t make sense and doesn’t seem practical. Imagine being in Malaysia and controlling the consumer experience on a Chinese language website in Hong Kong.
The key challenge for centralisation is that each of the portals are competing against different players in each market and these local portals need to be entrepreneurial and able to deliver rapid changes to meet the ever moving market requirements.
For an existing business with diversified operations, centralisation is often challenging. However for a new business with a small team and rapid acquisition of a number of businesses, centralisation is almost impossible.
Quality of Team
At both the Board and Senior Management levels, there was clearly a lack of experience in owning and operating property portals.
The Board appeared to have been assembled for the float of the business. Most of the board were Australian-based and had no day-to-day contact or experience with property portals.
Senior Management was seconded from Catcha Media, a company that had cut its teeth in the Asian markets on print publications. Even the CFO role was outsourced.
This meant that both the Board and Senior Management were learning on the job about how to own and operate property portals. This is not an ideal situation when you have to make rapid decisions on acquisitions and the day-to-day operations of the newly acquired businesses.
This lack of experience manifested itself was the belief that centralisation would create value, there could be a hands-off approach to the day-to-day operations of each of these businesses, a preoccupation with trying to get a true understanding of what had been acquired, and continued acquisition and launching of new businesses, even when the existing ones were not bedded down.
It also probably manifested itself with the rapid emergence of PropertyGuru in the Singapore and its ability to create a viable competitor throughout the South East Asian market. Their emergence should have been detected earlier and plans put in place to stymie their growth.
The last area that probably contributed to the market’s lack of interest in the stock was how the company approached its communication with shareholders, analysts and brokers.
In 2007 and 2008 there were a multitude of market announcements. Some of these actually didn't come to fruition and some were perhaps a tad overenthusiastic.
For example, the entering of a Heads of Agreement to acquire a portal in Thailand was well documented in the Prospectus. However it appears that this deal was never completed as a Thailand portal is not part of the iProperty Group. There seemed to be no specific announcement of the deal not happening.
In the announcement regarding RealAcres in India, it was stated that, “we are delighted with the acquisition of RealAcres”. However, iProperly was only acquiring a small percentage (25%) and had a path to full acquisition of the business. This path was never realized and it currently owns around 25% of what is essentially treated as a dormant asset.
Finally, in the announcement of the acquisition of VRHouse in Taiwan, the headline said, “IPGA to acquire Taiwan's number one online property portal”. Further reading disclosed that there are actually had a path to acquire the complete business and were only making an initial investment for a 25% stake. The announcement all talked about VRHouse being profitable in 2008 and contributing $1m to iProperty’s revenues in the same year. Within 18 months the investment had been written off.
Is clearly important that when communicating to the market that a company sets reasonable expectations and then clearly delivers against those expectations. That is how you build long-term support for the business with shareholders, analysts, and the media.