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Guvera bosses ignored expert advice against a 2016 IPO
By Chris Cooke | Published on Monday 19 March 2018
Management at failed streaming service Guvera ignored advice from financial advisors at JP Morgan when they ploughed ahead with an Initial Public Offering on the Australian Securities Exchange in 2016. This was one of the revelations that came up last week during a public examination of the collapse of the Guvera company, which included testimony from the firm’s co-founder and former CEO Darren Herft.
The Australian Securities Exchange ultimately blocked Guvera’s IPO, which began a sequence of events that led to the collapse of the digital music company. Accountancy giant Deloitte, as liquidator of the business, instigated the court-based public examination as it tries to work out what events and decisions led to the company’s demise, which in turn left shareholders $180m out of pocket.
The court heard that bankers at JP Morgan advised against rushing to IPO in 2016, citing Deezer’s abandoned flotation in France the previous year, and the fact that Sydney-based bank JBWere had failed to raise new finance from investors in Australia in 2015. JP Morgan’s San Francisco-based Global Head Of Internet Digital Investment Banking was among those urging a delay on the Guvera IPO.
According to Mumbrella, Deloitte’s legal man Ben Katekar said to Herft last week: “You went to the top of the top and he told you not to go ahead with the IPO and you did not take his advice. By seeking to go ahead with the IPO in early 2016 you were acting contrary to what JP Morgan had told you. Why did you go ahead with the IPO?”
Herft said that the company simply couldn’t wait any longer to IPO having failed to bring in significant extra finance the previous year. JP Morgan had been among those seeking to help find that finance, and the US bank had opened talks about a possible $100 million investment from Snapchat. However, that deal fell through and, as a result, Herft said, his board “were treading carefully with listening to JP Morgan’s advice at that time”.
Despite having the big banks seeking mega-bucks funding on its behalf by 2015, much of the finance that paid for Guvera came from smaller investors via the Australian investment vehicle Herft himself headed up, Amma.
Herft was also asked questions about a fundraising event staged in Hawaii back in February 2015, and statements he made there about the state of the business to potential investors. There was a particular focus on what he said about his company’s plan to enter the UK market via its then very new acquisition of Tesco’s Blinkbox Music. That’s an acquisition that it’s now known Herft himself had internally opposed at the time.
Katekar asked whether Herft had positioned the Blinkbox deal as an “attractive proposition” to potential investors at the Hawaii event, despite his opposition to it. He responded: “I don’t think I commented on the attractiveness. I advised them that we had acquired Blinkbox and I advised them that as a director I did not vote in favour of the acquisition”.
Although – Mumbrella reports – when Katekar countered: “You told investors you had just acquired Blinkbox UK and that was a positive matter they should take into account when considering whether or not to invest?”, Herft answered in the affirmative.
Deloitte’s public examination of the Guvera collapse is not yet over, and Herft is due back in court on 23 Mar for more questioning.
