Bartercard has opened their share offering to the public today with glowing references from IRTA, who according to the Prospectus have done more than just endorse them, they’ve thrown their lot in with them hook line an sinker! More on that and the significance of an exclusive 15 year exclusive recommendation contract later – it’s a humdinger of story in itself and will have major negative repercussions for IRTA for a very long time to come.
The deal that Bartercard has wangled out of IRTA is an incredible coup for a company that has struggled for a while with a failed IPO in the UK; a disaster of a foray into the USA market (that ended with their bankruptcy) and a business that has really never gotten past the Australasian base that it has pretty much dominated since its inception.
My relationship with Bartercard
I’ve had extensive dealings with Bartercard over several decades including as a member and ex-member by choice and at the end by their choice! I also was at the legal stage to buy a Bartercard License for Fiji from Kerry Gordon when Cnl Rabuka did some funny political things and our plans were stuttled!. The relationship has been a testy love/hate one in which I respected the aggression of the founder, but despised the dubious ethics that they constantly displayed, save for a few brave souls who stood head and shoulders above the mean.
I joined Bartercard when we had only 300 members in New Zealand and sold computer hardware, software and Internet website packages for more than 20 years. I took Bartercard to court over a matter of principle (and won of course); then successfully shook off their attempt to stop me trading by way of court injunction and then defended myself in the High Court of Auckland when they tried to sue me and close my legitimate trading activities down. Fortunately the judge was somewhat more astute than they and their lawyers were and kicked them into touch. They settled with me rather than having the judge shame them any more and we have had an uneasy relationship to this day. I have a signed agreement that current management definitely do not want made public but they have honoured it today, albeit begrudgingly.
The love side is that I have pretty much traded happily over the years and I have a lot to thank Bartercard for in not only bringing me new business but also teaching me much about trading as well as what not to do to traders like myself.
With the founder Wayne Sharpe gone, the door is wide open for Bartercard and the new boys are certainly attacking growth aggressively. According to the Prospectus they see potential in the UK and the USA, and very curiously in the barter software industry. That’s a new one! They’ve highlighted growth through acquisition as one method of business growth. It is of course a proven business model in many industries. They’re also stepping into the loyalty programme business through a relatively new App. More detailed analysis on all of this shortly.
The Prospectus is literally a book – a sales tool chock full of words (53,429 to be precise) and a few pretty words all designed to lure the investor. It’s available to Australian and New Zealand investors only from http://www.bpstechnology.com/about-us. I considered it seriously, but won’t be investing and don’t recommend investing with their current business plans, for they don’t stack up well in my mind having a lot more downsides than upsides. Prove me wrong Bartercard and I’ll take my hat off to you but at this stage, I can’t see it flying like your Directors all can despite the frequent reference to IRTA’s supposed glowing endorsement of the SAAS thing.
Their plans are to set up an umbrella company to bring the Bartercard Trade Exchange, the Software and the Loyalty programme into one. From there they intend to use a few million to pay off the last of their debt; to buy the New Zealand operation back and to bankroll the loyalty programme and their SAAS offering. It’s creative for sure, but the business model is unspectacular, doesn’t address the key issues that I blogged about recently and except for their core business as a trade exchange, it just smells all ‘new, new, new, risk, risk, risk’.
Analysing the Offer
The investment offering is not a simple clear-cut development growth of an existing business. They’re intending to do a truckload of little things to tidy the business up, including clearing debt, buying back the NZ operation, tackling two new areas of business (SAAS and a loyalty App). The whole feeling I get is one of housekeeping, getting their house in order and survival rather than that of a compelling offer based on strong solutions to clear opportunity. I like their aggression (they’ve always been good at that) but not their strategy.
My thoughts on the various components of the Offer with a first-up rating (out of 10):
- Buying back NZ (4).
I’d want Bartercard NZ too if I had the money, but borrowing to buy it back doesn’t change the essence of the IPO. It’s not an important thing to own Bartercard NZ per se, except for the three founders who will profit the most from owning the cashcow. The future could be the done the same with or without NZ owned directly by being creative and workign with the existing owners. It’s a red flag for me that they have to clear the debt in order to do SAAS with their technology. If their current funder believed in the new plans they’d be jumping at the opportunity or at least supporting it. I’m guessing here but I’m sure that there’s a story beyond what is in the Prospectus.
- White-labelling their internal system to a SAAS offering (1).
This will be a dead-duck for them. Their assessment of the potential of the SAAS market is seriously over-stated and fundamentally flawed. It’s sales-talk bordering on deception and the stuff of dreams. The 2,000 trade exchanges, $20b with 15% growth could be actually only 1,000 trade Exchanges, $5b and nigh-on zero growth (my own guesstimate) but the point is that nobody knows and no one will ever know because one CAN never know. I did a lot of research in this area when assessing conman Daniel Evans’ wild claims when he was peddling the Ormita fraud. I don’t believe that it’s as big an opportunity as both Bartercard and Daniel have stated and I base this on the quality and source of the figures. Ron from IRTA says. Daniel from Ormita says. Dennis blogging from Paradise. They are actually just figures plucked out of the air. What IS real however is the long history of people trying to corner the barter software market and their failures. It’s a ‘hell’ of a business to try and get into. Bartercard are just the latest boys on the block and it’s obvious. They’re essentially a Microsoft shop still using some ASP and a mixture of all sorts of other technologies. I actually wouldn’t be shouting about this! They’re big boys with a bad reputation who will be trying to deal with their direct competitors with a stated intent to grow by acquisition and a history that, well let’s not knock them on their big happy day, but . . . Ouch! That’s a hard sell if ever there was one. They’ll pick up a few this way but most will opt for other solutions where they can trust their data and business to an independent not out to squash them! I predict dismal failure on this front for Bartercard.
- The Loyalty App (5).
This could work but software is never and has never made a business. Google’s software was a key component in their success but it was the business strategy that made it fire. Smart software is a prerequisite for success but an App is an App is an App. Connecting their App to the Bartercard network is smart and if it brings value to the members then great, but putting it into the Bartercard mix as a key component to me is a mistake. It should be simply a part of the offering. The App developer wins out of this one big-time. He should be pretty jolly happy if/when it all goes through. I would sell my shares though the first day that I could and go on to other things if I was him! I give this aspect a pass but it’s not as rosy as the Prospectus makes out.
- Growth through acquisition (0).
Forget it. There are so many worms in the can in this industry Bartercard would be 100x more effective just doing it like they have in Australasia to date – the hard way, themselves. They will then have clean growth, quality growth and the only problems would be those that they have generated themselves. Buying other exchanges will be a waste of time as due diligence will feret out all manner of trouble. My estimate is that 10% of the industry would be worth buying and only 5% of that 10% would be on the market for anything reasonable! They’ll pick up a few low-hanging fruit and abandon their efforts as a waste of time.
- Mixing the three parts of the business (7)
I like the creativity here and it could work for them in the short-term but it’s a strange setup that must surely be restructured again within a year or two once the directors all get what they want and the dust settles. Like it or not ‘Bartercard’ has had a clear mission, focus and brand. BPS confuses it enormously but time will tell. If they proceed, I predict that they will revert to the core Bartercard business with Apps and SAAS divested or integrated within a short space of time.
- Strategic (4)
I think the whole thing is flawed strategically with a degree of desperation flowing through the decisions. It’s almost like the Directors had their back to the wall and just took what they had available to them and threw them into the pot to make a go of it. Summarised the strategy sort of sounds like a board meeting that said, “What the *** can we do? Let’s go for broke and own the world eh? Yeah, it would be neat if we can get NZ back, then we can do SAAS, and lets bring in the App guy as well then we’ll have his technology. List ourselves and we’ll all be set for real growth!” I might be a little disingeneous here but that’s how I view the whole thing for what it’s worth from reading the Prospectus. If I was advising them I’d say pray that they IPO doesn’t proceed, offer the App guy a few shares, abandon the SAAS idea and build Bartercard into a global player as a smart networking company making money from other peoples’ currencies, not their own. That advice will be worth many millions Mr Bartercard if you took it. You got if free here!
- Aggressive growth (9)
This is great. Bartercard has always been a strong marketer, self-promoting and trail-blazing. Despite their problems (and there are many) it’s in their genes and they should push through. Doing it the solid way, franchising, protecting their patch and just doing the hard yards is proven. They don’t need to leap-frog ahead and own the world right away but going for it is good to see. There are opportunities for sure!
- Financial forecasts (4)
I don’t think they have a snowball’s chance of meeting their projections. I’d also be [pleasantly] surprised if they raise the money they hoped for. I wish them the best though. Again, we’ll see what they can do.
- The People (9)
There is some good experience on the team and clearly some good people in there. The original founder Wayne Sharpe was a two-edged sword as the spearhead and driver but from what I can see his input wasn’t always positive for the company. I question the self-interest of the three key players, if it all comes off they’ll be pretty happy but that is their business to build something and get a good return.
- IRTA’s endorsement/coordination (10)
This is a real stunner for me. The words, “The Tess business expects to grow via new sales into the approximately 2,000 Trade Exchanges currently in operation, utilising the exclusive endorsement of the global association for trade exchanges (IRTA) to promote the Tess Platform as the preferred technology for use by its members” and “Funds raised in the Offer will assist BPS to execute its growth strategies [which includes] 3. Rollout the Tess Platform in a co-ordinated effort with IRTA to establish it as
the global Trade Exchange software platform enabling seamless trade across Trade Exchange communities globally” are like lightning from the sky in this industry. If this validates (after all this is only Bartercard’s Prospectus and I haven’t seen any announcement from IRTA yet confirming it) then it’s a Coup with a capital ‘C’. Whatever they did, said, paid or promised to get that would have to be one of the greatest investment stories of the decade! The only flipside of this is that if it blows up for IRTA and they backtrack then Bartercard will have serious egg on their face and may have to reassess or abandon their SAAS plans.
- Their motive – listing (7)
I understand their motive to list – easy money. Increased working capital is good for them, if they can get it. Clearing debt, opening the doors, expanding can all be good. It’s not a magic or compelling package though.
- Their Risk Analysis (8)
They’ve done very well to list the associated risks in the Prospectus with nine Operating Risks and four General Risks identified. Whoeever thought through and signed off on this aspect of the Offer deserves some kudos. Unfortunately though they are all very real, some even probable.
My take overall is that the offering is interesting but not for me. If they would take Bartercard Trade Dollars I’d be in tomorrow, but they don’t offer that or mention that – funny eh?
The Bigger Story
There is a much bigger story in this Prospectus than Bartercard’s attempt at listing. It’s the one relating to IRTA’s incredible endorsement. I’ll be sharing about the significance of this endorsement more in due course but here is my initial take . . .
- IRTA’s mission is to look after all its members
- According to the public document issued by Bartercard (technically their proposed new owners) IRTA has in June 2014 apparently signed an agreement to promote Bartercard’s technology exclusively as the preferred (the best in the world) for the next 15 years.
- This is a strategic and ethical disaster of the highest order for IRTA. It’s worse even than simply closing up shop and going fishing!
Ladies and gentlemen, explain it however you so wish but . . . Bartercard has just bought IRTA. This is an exclusive commercial endorsement from a supposedly independent and neutral organisation out to further the interests of its members – an agreement that has supposedly been signed in June of 2014, and of course must have been a Board decision. Even if the IPO doesn’t proceed, even if the events are not ratified, it could have happened and (according to the Bartercard Prospectus) it has been planned.
Personally I am stunned. If it is true (Ron Whitney, Executive Director of IRTA has not yet responded to my emails on the subject and Paul Bolte, Bartercard’s representative on the IRTA Board, has declined to respond to the subject) then it is the height of opportunism and one of the stupidist strategic blunders in the history of IRTA, possibly the entire industry.
My intial take on this is that unless the Board of IRTA rescinds their agreement with Bartercard to provide exclusive endorsement and active cooperation with the one industry player, IRTA will head into a massive downwards spiral and possibly even cease to exist. Heads will also roll.
I have MANY questions over this entire thing – the mere fact that this conversation with Bartercard even took place totally stuns me.
Some subjects that I am now interested in are:
- The negotiation and decision-making process used to secure the deal. I’m thinking transparency, managing conflicts of interest and so on. For example Bartercard has a representative on the Board of IRTA. What was his role and involvement in the deal?
- The IRTA charter and how that is implemented/affected. On first take, any exclusive agreement to endorse one business appears to be contrary to the organisation’s stated aims.
- The significance of the relationship on other software suppliers (members of IRTA and not). I can’t help but wondering how other software vendors will be thinking anything but ill-will towards IRTA.
- The IRTA Board’s voting split – who endorsed the move and why, and who opposed and why. This information will have a big bearing on their upcoming meetings. I suspect that there will be a division in there somewhere and I’m interested in clarity of the issues. Copies of the minutes of the meeting that signed off on the deal will be worth more than gold for a little while I would imagine and will be being tucked away in the closest safe or shredded as the proverbial hits the fan!
- The role and influence of key personnel within IRTA, and their agendas/benefits from the deal. As always asking the question, “Quo bono [who benefits]?” is helpful to understanding a complex or confused situation.
- The significance of this on the Universal Currency dollar, brand, services and technology. There must be ramifications in this area, surely?
- How this fits into the strategic plans for the organisation in the next 15 years. I know that the organisation doesn’t currently think 15 years ahead so this agreement is a clear statement of intent moving forward – IRTA=Bartercard for the next 15 years.
I have more questions spinning around in my head too over this. Who released the news? Bartercard or IRTA? When was the release planned? Who knew and when? Who assessed the Bartercard software and to which other systems was it compared – by whom and how? Where are the test results? Why was I not involved in the comparison process? I commenced programming more than thirty years ago and have just completed a major private investigation into a global fraudster who peddled software under false pretences in the barter/reciprocal trade industry. Surely I would be the first person to be approached for analysis, or commentary, or at least be aware of any research into the Trade Exchange software industry? I wasn’t! No personal offence but something is not right if I don’t even KNOW about it, until I see it in Bartercard’s Prospectus!
I have and will continue to ask questions of IRTA, and Bartercard as time goes on. I’m sure that many from within the industry will want to share their take on this too. Stand by for more commentary as I share my findings about what is quite simply one stunning, almost unbelievable sequence of events.
Either IRTA has gone totally haywire or Bartercard is inventing stuff and on a con of its own!
This post is the second post in a series about Barter. In my next post, I explain my concerns at the quality of the information provided in their Prospectus – it’s a dodgy document.
The Barter Series
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