Xurpas, the Philippines’ first listed technology firm, is looking to issue fresh shares to Wavemaker Partners US, which has agreed to a reverse takeover of the company in a bid to save it from a possible collapse.
In a disclosure on October 19, Xurpas clarified that the founders will not be selling any of their shares to Wavemaker.
“All of the Xurpas shares to be issued to Wavemaker Group will be out of the unissued authorized capital stock of the company. The founders will not receive any consideration from the transaction,” Xurpas told the Philippine Stock Exchange (PSE).
Xurpas has agreed to acquire the Los Angeles-based early-stage venture capital firm for a reported 170 million pesos ($3.3 million), the same amount that the general partners of Wavemaker US (Frederick Manlunas, Paul Santos, James Buckly Jordan), Wavemakers Partners V, and Wavemakers US Fund Holdings have agreed to pay to the tech company for 1.7-billion shares, representing a 48-per cent stake in it.
“The subscription of the subscribers will enable Xurpas and Wavemaker Group Inc to forge a long-term partnership that will help Xurpas’s financial stability and provide business opportunities in the long term,” Xurpas had earlier told the Philippine Stock Exchange (PSE) on September 7.
Under the deal, Xurpas committed to listing the shares of Manlunas, Santos, Jordan, Wavemaker Partners V LP, and Wavemaker US Fund Holdings with the PSE within a year of the closing of the transaction. The deadline for closing is on or before December 31, 2020.
Separate emails sent to Xurpas and Wavemaker Partners US did not elicit any response.
A reverse takeover allows a private company to be acquired by a publicly-listed firm so that the former can bypass the lengthy and complex process of listing.
The transaction will help Xurpas, once a favourite of investors, remain afloat after bleeding millions of dollars over the last two years, as seen in its financial reports.
What went wrong in Xurpas
Xurpas hit the bourse in December 2014 to raise as much as 1.36 billion pesos ($28 million), thereby becoming one of the most successful IPOs in the archipelago.
It sizzled on its debut as investors scrambled to grab a piece of the country’s first-ever listed technology company. After all, its listing came just three months after Chinese e-commerce behemoth Alibaba raised $21.8 billion in its IPO in the US when investors had a good appetite for tech stocks.
However, six years on, the company’s losses have mounted, raising questions on its very survival.
The company’s stock last hit a high of 19.4 pesos in April 2016 but it failed to sustain its momentum. Last year, it incurred losses worth 2.64 billion pesos ($54 million), while a year earlier the company incurred 811.64 million pesos ($16.7 million) in losses. What’s noteworthy is the losses incurred for the two years were higher than the combined profit that Xurpas made from 2014 to 2017.
In its 2018 annual report, major auditing firm SGV & Co warned that “future events or conditions may cause the group to cease to continue as a going concern”.
The downhill comes even as the first trading day on December 2 saw the company’s share skyrocket, closing at 5.95 pesos per share, hitting the daily ceiling of 50 per cent.
Established in 2001 by Nolledo, Raymond Gerard Racaza and Fernando Jude Garcia, Xurpas’s coffers started to overflow when it acquired a 51-per cent stake in Yondu from Globe Telecom for 900 million pesos ($18.5 million) in 2015.
Yondu became Xurpas’s cash cow, with less to zero marketing efforts on the side of the tech firm as customers who signed up for Globe were automatically charged for value-added services that included Yondu’s games, stickers, and ringtones.
Since then, Xurpas acquired several companies to expand its portfolio of mobile technology products and services, enterprise services, and invested in companies that aided in the distribution of the aforementioned products and services.
The company emerged as the most active tech acquirer in Southeast Asia in 2017, according to a report released by venture intelligence platform CB Insights. Its profit for the year, however, dropped to 102.57 million pesos.
Problems seeped in when Yondu, the company’s cash cow, began to feel the heat from angry customers who were not given an opt-out option by Globe Telecom. A senate inquiry prompted Globe to turn on an opt-in scheme for its value-added services.
For Xurpas, whose business was largely revolving around Globe, the order hurt its financial position, forcing it to sell Yondu back to Globe in 2019, for 501 million pesos ($10.3 million), taking a painful 400-million-pesos beating.
It was the same time when Xurpas had to dissolve its subsidiaries Xeleb Technologies Inc and Xeleb Inc, which handled celebrity-themed mobile games since the two companies had “no significant contribution to the Xurpas Group.”
What added to the company’s woes is a series of dissolution and consolidation that followed suit. MatchMe, which Xurpas acquired in 2015, was rendered dormant in 2019, while Art of Click was closed after incurring 271 million pesos ($5.6 million) losses in 2018. Seer Technology was absorbed by the company due to heavy losses while Storm Technologies lost 80 million pesos ($1.7 million) last year.
In a recent press release, Xurpas’s Nolledo had said the deal with Wavemaker significantly expands the company’s technology base, thereby giving Filipino shareholders and investors access to an entire portfolio of promising venture-backed early-stage companies in the US.
The transaction, however, does not include Wavemaker’s Southeast Asia practice, which will remain independent and wholly owned by its management.
Wavemaker US has been operating for almost 17 years as a top-rated US technology fund – it has a track record of successful exits via both a public offering of shares and acquisitions. It has over $210 million in assets under management.
Founded by Eric Manlunas in 2003, the VC firm has invested in over 230 technology companies and focuses on high impact tech areas such as enterprise software, data, and intelligence platforms, and other technology-enabled companies in digital media and consumer.
Some of the more prominent investments Wavemaker US has made over the last several years include Mindbody, which went public and was eventually acquired by Vista Equity for $1.9 billion; StyleHaul which was acquired by RTL for over $200 million; and Viagogo, which has become the largest ticketing exchange outside of the US.