Stricken digital music firm Omnifone’s technology business and assets are being bought for $10m by a mystery US company.
That’s according to a document published by the firm’s administrator Leonard Curtis through Companies House in the UK, as well as distributed to creditors for a meeting this afternoon.
Omnifone went into administration in early May, laying off 71 staff in the process.
The report reveals that 34 parties expressed interest in buying Omnifone’s business and assets before the deadline of 17 May, although Leonard Curtis ultimately only received six offers.
“An offer of USD $10,000,000 from a US purchaser for the Technology Business and assets of the OL, excluding the patent portfolio was accepted by the Joint Administrators of OL on 18 May 2016,” explains the document.
“The proposed deal also includes a royalty bearing licence over the patents held by OL which will assist in exploiting the value in the Patent Portfolio.”
The administrators say that the final terms of the sale are being finalised, and it is expected to be “completed shortly”.
The document does not reveal who that US buyer is. Several Music Ally sources have suggested Apple was in the running, although the company has not responded when we contacted it to ask whether it was the buyer.
Another source had suggested that an American investment firm with a background in media (but not digital music) was the frontrunner in the bidding process.
The administrator’s report also outlines the key moments in Omnifone’s slide into administration, including the cancellation of contracts with Sony and SiriusXM, as well as another client, streaming service Guvera – currently facing troubles of its own – stopping paying Omnifone for its services.
The document says that in 2015 when Sony cancelled its contract with Omnifone to run its Sony Music Unlimited service – which was later replaced by a partnership with Spotify – Omnifone began looking for new funding from existing and new investors.
In July 2015, it raised £3m via convertible loan notes, secured against the assets of Omnifone Limited, Omnifone Group Limited and another subsidiary, Global Mediabank. By the time of its administration in May 2016, those loan-note holders were owed £6m by Omnifone.
In September 2015, SiriusXM served notice of its intention to cancel its contract with Omnifone, which was the trigger for a change of strategy for the embattled company.
“The SiriusXM contract cancellation meant that it was not possible to raise funds externally and the Group decided to enter into detailed discussions with numerous industry players with a view to selling its business,” explains the document.
Yet by this point, Guvera had “ceased making payments to the Company under its service agreement” too. Both SiriusXM and Guvera agreed payment plans to help Omnifone continue looking for a buyer.
However, according to Leonard Curtis “while SiriusXM made payments in respect of the plan, Guvera failed to do so and owed the Company AUD 3,401,120 at the date of Administration” – that’s £2.6m.
The report claims that Guvera has “failed to honour” a settlement agreement for £1.8m. While Leonard Curtis has issued a statutory demand for that amount, given a legal dispute between Omnifone and Guvera, and the latter company’s current financial troubles, the administrator isn’t holding its breath for the money.
“Given Guvera’s financial position and the fact that a number of its subsidiaries have been placed into Administration, it is unlikely that the debt will be recoverable,” explains the report.
The document provides details for Omnifone’s financial performance over the last three years, with revenues of £38.5m in the year ending 30 April 2014, falling to £36.8m the following year. The company’s turnover then plummeted to £11m in the year ending 30 April 2016.
The report outlines the attempts by Omnifone executives to cut costs in the latter months of the company’s life, when unpaid tax bills presented another headache.
“The Group also attempted to reduce costs and manage cash flow, by agreeing a payment plan with HM Revenue & Customs (“HMRC”) in February 2016 in respect of PAYE/NI arrears of £237,775 and the executive directors all elected to take a reduction in salary in February 2016 of 40%,” it explains. “At the date of Administration, outstanding PAYE/NI arrears totalled £547,235.”
No companies came forward with an acquisition to rescue Omnifone, so the company was forced to call in the administrator in early May.
At this point, Omnifone had £46.8k of fixed assets, £170.2k of cash and debtors of £3.2m, but it owed creditors £25.8m falling due within a year.