Fascinating public information now available from the SEC

3 comments April 3rd, 2008 David Bush - Iasta

This week, the SEC documents from Ariba filing of the recent acquisitions, were made public. Wow, they are packed full with incredible information. For those that do not enjoy reading financial filings, here are some of the gorey details of the string of acquisitions that led us to today.

• Procuri was losing money and not getting close to reversing the trend. -$6.2M in 2005; -$7.6M in 2006; -$4.3M in first 9 months of 2007. So, the bleeding was slooowing, but…you can put lipstick on a pig too. Procuri was not a “pig” but I will explain this analogy later.
• It appears at least $37.5M in venture capital and related debt instruments were used from cradle to grave to create the sale of $92M in stock and cash plus $8M in debt relief.
• Sales were growing rapidly: $17.4M in 2005, $22.3M in 2006, and $21.2M in first 9 months of 2007. Of course, one has to remember there were acquisitions of TrueSource and CMSI that increased this growth percentage. These numbers do not reflect the COST of the growth.
• Procuri paid $2.2M for TrueSource ($1.5M in cash and $684K in Stock). TrueSource only had $5k in the checking account and $150k in AR, at the time.
• Procuri paid $14.1M for CMSI ($7.1M in cash, $562K in stock, $4.6M in debt issuance (a note payable at 10%!), and $1.7M in liabilities assumed) CMSI had $533,000 in the checking account and $858,000 in AR (+ $426K in fixed assets) when acquired.
• Procuri spent a WHOPPING 70% of inbound revenue on sales and marketing expenses (if you can assume most of the COGS were sales/marketing commissions).

The official 10K is not yet available, but this is a very detailed break down of the evolution of Procuri. I mentioned previously that those losses amounted to putting lipstick on a pig. (I have a better analogy, but this is a happy blog). In this case, I am only referring to the investors that essentially cut bait and ran. The two main VC broke even, in VC terms, and ran away from the scene of the crime. When they started this in 1999-2000, they were certainly expecting a 10:1 minimum ROI. To see that they would never even get to 2:1, they took this offer and moved to the next opportunity. It is very likely that a select few managers at Procuri, did have exercisable options that made them quite wealthy (or wealthier), so this was a big pay day for the chosen few.

However, it is obvious that this was ALWAYS the plan, and it worked. Over investment in S/M, with huge losses, paid off in a larger final sale price. The valuation (3.6 : 1) was outpacing the losses and it was a calculated gamble that did not crap out. Although, that is speaking from the shareholder perspective. I do not think any one can effectively argue that the clients were the primary concern at any stage.

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