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By Tom Winnifrith, The Sheriff of AIM | Thursday 14 September 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Neil Woodford, Paul Scott and the man who compares himself to Warren Buffett, Roger Lawson, have no doubt done full due diligence on the manangement at Purplebricks (PURP), notably its founders, the Bruce brothers. Or maybe not...
Most investors realise that it's important for a company to have a good management team. In that respect, if you really dig, the form of the founders and management of Purplebricks does not appear overly promising.According to paragraph 5.5 on page 81 of the IPO prospectus.
"Michael Bruce was a director of Be Moved Limited (company number 05751900) and Cornerstone The Midlands Limited (company number 03095041) when the companies entered administration on 11 November 2008. The assets of the companies were sold to Burchell Edwards (Midlands) Limited on 31 October 2008. Michael Bruce was a director and shareholder of Burchell Edwards (Midlands) Limited until it was sold to Connells estate agency in November 2011. Be Moved Limited was dissolved on 27 July 2010 and Cornerstone The Midlands Limited was dissolved on 29 January 2011. Michael Bruce was not the subject of public criticism in connection with the administrations."
Both Be Moved and Cornerstone The Midlands, managed and controlled by the Bruce brothers, went bust in 2008. They bought some of the assets back out of administration, but as per their previous attempt at running the businesses, future prospects did not end well either.
The Administrator's Reports for Be Moved and Cornerstone The Midlands reveal some interesting details. One section highlights how upon inspection, the reported debtors of the business were difficult to recover, not helped by the fact that there was no clear or evidential paperwork to substantiate the claims. For example, the Administrator highlighted (emphasis added):
Further to comments made in the Administrators’ Proposals, realisations from the Company’s book debts have not been as significant as previously anticipated. The Company’s books and records indicated that the sum of £303,807 was owed to the Company in respect of trade debts at the date of Administration, which were estimated to realise £200,000. However, a number of the Company’s book debts which the directors indicated were collectable have not been realised to date, mainly as a result of a lack of supporting documentation in the Company’s books and records.
In 2010, the Bruce duo incorporated JKM Property Solutions Limited (company number 07293371). This appears to have been a concept business, focused on a niche area of the property market whereby JKM Property Solutions would assist vendors with properties that required renovation. If a property required a face-lift such as a new kitchen, bathroom, redecoration, etc, then JKM Property Solutions would liaise with the vendor and buyer to ensure that the works were carried out between exchange and completion.
Similar to both Be Moved and Cornerstone The Midlands, JKM Property Solutions also ran into difficulties and was wound up in late 2012.
And again, similar to the Administrator's Reports for Be Moved and Cornerstone The Midlands, some of the comments, purportedly from persons familiar with JKM Property Solutions at the time make for interesting reading.
One commentator highlights (emphasis added):
Essentially no surprise at all. I had first hand experience at JKM and whilst the period was highly interesting professionally, the organisation (I mean that in its loosest sense) and total lack of accountability and management was remarkable. Without any clearly defined leadership or direction, the only prognosis in my opinion for this organisation has been realised. In the interest of a balanced opinion however I do concur with Mr Hill that there were a certain few individuals who appeared to try hard but given that they lacked any significant previous experience in their respective roles, one could accuse them of being busy fools and that they were destined to fail without any significant support from "senior management".
On a more practical note, I personally witnessed some of the most appalling workmanship I have come across in my career to date, mostly due to the apparent lack of any meaningful site supervision. Again though there was one exception to the rule which I saw. Had this been the general standard of installation I think the business model stood a chance.
Funny how the blame game seems to be played. If it was indeed a result of the PD's not achieving the sales, I would ask who was managing the situation? In summary, a great principle, ruined in practice by misguided, inexperienced and ineffectual management and a generally undirected sales force.
I dare say that there will be certain individuals that will argue that my experience was not representative of what was actually happening but my counter argument would be that its academic, the above is of course my perspective on events but nevertheless the outcome for JKM remains unaltered.
Michael Bruce did not have a grip on the reality of what was happening.
When you have national agreements with the big corporates it should have been easy...... only we were continually told to push them and push them to the point of self destruct. The corporates were always worried about sales completing (and who could blame them) so did not allow business to come our way.
Michael should have listened to the sales professionals who could have made this company work.
There seems to be a common theme throughout the Bruce brothers’ history. Of course, there are two sides to every argument and much like the copious five star Trustpilot reviews for Purplebricks today, there are also some fan type reviews for the Bruce brothers’ historic approach to management. However, one may wish to err on the side of caution when also reflecting on the fact that as recently as June 2015, and when at Purplebricks, Kenneth Bruce was censured by the National Federation of Property Professionals (NFOPP) for conduct involving “unprofessional practice or practices that is unfair to members of the public” and failing “not to mis-describe class of membership”.
It is not clear from the NFOPP's censure what unprofessional practice was committed but failing not to mis-describe class of membership appears to indicate that Kenneth Bruce misled others into believing either himself or another person was a member of the NFOPP Association, or a member of any particular class.
According to the NFOPP it was also alleged that among other rule breaches that Kenneth Bruce was involved in “dishonesty or deceitful behaviour”. However, some of these allegations were subsequently withdrawn.
With such a record of recent public criticism, it is hardly surprising that Kenneth Bruce resigned as a director of Purplebricks, literally just a month prior to Purplebricks’ IPO in December 2015, thereby allowing the prospectus to accurately state that at the date of the Admission document that none of the Directors “has been the subject of any public criticisms by any statutory or regulatory authority (including any recognised professional body) …”.
Kenny Bruce had already exited stage left ... at least in an official sense.
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