Forensic data company Nuix debuted on the ASX on the 4th of December, with an IPO price of $5.31. Macquarie, the largest shareholder, used the IPO as an opportunity to sell-down its 66 percent stake to 30 percent; a windfall for Macquarie of over $600 million.
Nuix jumped out of the gate, with the share price jumping to a high of $11.85 in January. Many were wondering why Macquarie had partially cashed out of this seemingly great company, leaving potentially hundreds of millions of dollars on the table.
Then the problems started.
In January, worries over a supposed jump in inflation led to some selling in technology stocks, knocking Nuix from its then lofty perch.
Then in February, Nuix released its first half results. The company reported first half revenues of $85.3 million, down 3.9 percent, while profits dropped 214.4 percent to a loss of $16.5 million.
The share price tanked.
Nuix was quick to point out that these results were in-line with what was guided in the prospectus, though this turned out to be a rather subjective interpretation of previous guidance.
Nuix would suffer further downgrades, including in April, when they admitted they were unlikely to achieve most of the full-year results guidance provided in the prospectus, and again this week, where they lowered the new forecasts further.
The company is now preparing for negative revenue growth this financial year, while the business had been marketed as a high-growth tech play. Nuix leaders have asserted that some of the issues are due to the inclusion of the US election this financial year, the COVID-19 outbreak, and a shift from a membership model to more of a consumption model; it remains to be seen whether these impacts are confined to this year, or whether some of them will be ongoing.
In addition to the relatively poor operating performance, there is another elephant in the room. Former CEO Eddie Sheehy is claiming that the company stitched him out of more than 22 million options when it did a pre-IPO stock split (where everyone else’s stock and options got multiplied by 50). Mr Sheehy is also claiming that he should have had the opportunity to close his positions at the all-time high of $11.85 and that Nuix therefore owes him more than $250 million.
Mr Sheehy has taken his complaints to the Federal Court and should the court find in his favour, it will likely be a big additional cost that Nuix, and by extension its investors, will have to weather.
The issues experienced by Nuix once again call into question the public offerings of large privately held companies in Australia. Was the IPO just an exit strategy for Macquarie?
Whether or not Macquarie viewed the IPO as a way to take their winnings off the table, or whether they legitimately believed that this was the important next step in the company’s life, one thing is likely; Macquarie will face a tougher time convincing investors to support its next IPO.
Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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