Deloitte has released its insolvency report into what exactly went wrong at Powa Technologies, the London payment company that blew up spectacularly in February after blowing through hundreds of millions in investor money.
The company autopsy reveals Powa’s ultimate controlling company raised £143.94 million ($203.7 million) in debt and equity funding from 2013 onwards, as the company was valued on paper at $2.7 billion. But only the most senior secured debtors are likely to ever see any money returned. Even those will get only a fraction of what they lent back. Equity investors will get nothing.
Here are the key points and new revelations from Deloitte’s report:
- Powa’s main trading company lost £16.6 million ($23.5 million) on revenue of £667,000 ($944,000) in 2013; lost £38.5 million ($54.5 million) on revenue of £1 million ($1.4 million) in 2014; and lost £31.8 million ($45 million) on revenue of £4.8 million ($6.8 million) in 2015. However, it was profitable on a gross basis in 2014 & 2015;
- Powa’s controlling group company raised £143.94 million ($203.7 million) in funding, both debt and equity, since 2013. When Administrators were appointed, it had just £250,000 ($353,800) in the bank;
- Staffing costs hit £24.8 million ($35.1 million) in 2015. Property rental was running around £2.4 million ($3.4 million) annually;
- Revenue came from PowaWeb and PowaPOS, not PowaTag (confirming Business Insider’s previous reporting);
- The bulk of the 1,200 brands PowaTag claimed to have signed up had only signed non-binding letters of intention, again confirming BI’s previous reporting. Deloitte says only around 100 merchants actually signed formal contracts;
- PowaWeb, one of the company’s three main divisions, was sold for £200,000 ($283,000) by administrators;
- Powa’s main investor, Boston’s Wellington Management, was behind the acquisition of PowaTag, another of the divisions. Wellington is a backer of Bidco, the vehicle that brought PowaTag out of administration;
- Deloitte is “in discussion with potential purchasers for the Companies’ remaining PowaPOS business”;
- “There is no prospect of a return to shareholders of the Companies”;
- “There is no prospect of any funds being returned to unsecured creditors “;
- Secured creditors, Wellington Management in its various guises, lent Powa £70.8 million ($100 million) but “will not be repaid in full”;
- Aside from the £70.8 million in loans, Wellington invested around £67 million ($96 million) in equity;
- Intergroup debt increased as the years went on as the controlling company lent more and more to subsidiaries to fund operations. This ran down cash reserves from £16 million ($22.6 million) in 2014 to £755,000 ($1 million) in 2015;
- As a results of these loans and investments to subsidiaries the group company was “on the face of it, balance sheet solvent, [but] this was on the basis of investments in and receivables due from broader Group companies, the recovery in respect of which may be minimal”;
- Deloitte says “no value was prescribed to other intangible assets, such as intellectual property and capitalised development costs as these were fully amortised”;
- In early 2015 Powa implemented a redundancy programme costing £3 million ($4.25 million);
- Around 110 former employees are making claims against the company totalling around £150,000 ($212,200), including claims for unpaid wages;
- The crunch came for Powa in December, when $60 million (£42.4 million) of the Secured Creditor’s debt came up for repayment. Deloitte says: “The Companies sought to renegotiate and extend repayment terms, but mounting creditor pressure with threats of statutory demands, including a winding up petition against LTD led to the Secured Creditors taking steps to place PLC into administration protection. Shortly after, LTD was also placed into administration”;
- Deloitte is investigating the conduct of directors, but this is at the moment simply routine;
- Powa’s founder and former CEO Dan Wagner was paid £1,155 ($1,634) “for certain items of boardroom equipment and furniture.”
In short, Powa grew too fast and overreached itself, running up a huge cost base while revenues were still minimal. Deloitte confirms that the business “was in essence ‘pre-revenue'” by the time it went under, but had offices in Hong Kong, Germany, France, and Italy, and employed around 300 people worldwide.
The chart below from Deloitte, showing the Powa group structure, shows just how complicated the operations were.
Deloitte was appointed to dismantle the business and return as much cash to creditors in late February. Powa Technologies makes online shops for brands, builds tills and other card reader technology and makes an app that lets consumers buy things by scanning the world around them — QR codes, audio waves, images etc.
Powa once claimed to be worth $2.7 billion (£1.8 billion) but by the start of the year was struggling to pay staff and had just £250,000 in the bank.
EXCLUSIVE FREE REPORT:
5 Top Fintech Predictions by the BI Intelligence Research Team. Get the Report Now »