EYE NEWSFLASH: Purplebricks’ access to cash under threat as sale update issued – London Wallet

Purplebricks has just issued a worrying update on current trading and on the progress of its strategic review and Formal Sale Process.

Of particular note is the fact that negotiations relating to the formal sale of the business are ongoing. But at the current time, the transactions being contemplated, if concluded, would be expected to deliver returns to shareholders materially below the company’s current share price.

FY23 Trading Update: 

The Group expects to have finished the financial year ended 30 April 2023 (“FY23”) in line with management expectations, as announced on 17 February 2023. However, instruction levels did not increase through Q4 of FY23 as previously anticipated (5,672 in Q4 of FY23; 10,964 in Q4 FY22), which is anticipated to primarily impact on revenue and EBITDA for FY24 (due to revenue deferral accounting adjustments which mean revenue is recognised throughout the period of service provision). In light of the Group’s current financial position, the Group’s payment processor for ‘pay now’ instructions has exercised its right to withhold a portion of remittances to the Group. This withholding and level of instructions has impacted the Company’s cash position, which as at 30 April 2023 is estimated to have stood at c. £9.1 million. The Board now expects that the previously anticipated return to cash generation in early FY24 is unlikely, given the trading performance of the Group, and whilst the Strategic Review and resultant uncertainty around the future of the Group remain ongoing.

The term of the Group’s contractual arrangements with its finance provider in relation its ‘pay later’ offering ended on 30 April 2023. The arrangement has been extended for a short period (with a further short term extension under discussion) while the Group’s Strategic Review is ongoing. Should the Group not be able to agree revised terms for the financing to support its pay later offering, or should those terms be disadvantageous to the Group or its customers, this would accelerate the Group’s utilisation of its remaining cash reserves.  Any further increased rate of withholding by the Group’s payment processor for pay now instructions would also accelerate the Group’s utilisation of its remaining cash reserves.

In light of the above, the Board believes it is necessary to conclude the Strategic Review and the Formal Sale Process promptly and in a manner that provides more certainty around the Group’s future ownership, that provides the business with access to additional funding and results in a longer term extension to the finance for its pay later offering. In the view of the Board, a conclusion to the process is necessary in the interests of shareholder value, and to create greater stability and clarity for the future of the Company, its employees, its funding partners and its customers.

Update on Strategic Review and Formal Sale Process

Prior to launching the Formal Sale Process a comprehensive Strategic Review was launched on 17 February 2023, which considered all options for the future of the business, including the potential for an equity fund raising and the sale of the Company or some or all of the Group’s business and assets. At that time and following consultation with the Group’s largest shareholders, it was concluded that an equity fund raise was not a viable option to recognise the potential of the Group, and having received several credible expressions of interest, it was the opinion of the Board that a Formal Sale Process be launched to fully explore a potential sale of the Group.

The Formal Sale Process has been ongoing since 1 March 2023, and in this time the Group has engaged with a significant number of potential offerors, both via outbound and inbound approaches. The Formal Sale Process has involved several rounds of bidding designed to identify the most credible potential offerors, considering both the value being offered to Purplebricks’ shareholders, and the ability to deliver certainty for the Group and its stakeholders in a short timeframe.

Presently, a small number of parties remain in discussions with the Group in relation to the sale of the Company or some or all of the Group’s business and assets.

Negotiations are ongoing, however, at the current time, the transactions being contemplated, if concluded, would be expected to deliver returns to shareholders materially below the Company’s current share price.  There can be no guarantee that these negotiations will result in any such transaction, and there can also be no certainty on the timings or level of any return to shareholders.

Given the expected level of potential returns to shareholders the option of an equity fund raise has been revisited but is still considered to lack the necessary support. The Board with the assistance of its advisers will continue to engage with shareholders to understand their views on the options for the Group.