Freesteel Blog » Vero sells out to a VC

Vero sells out to a VC

Friday, June 18th, 2010 at 9:14 pm Written by:

I’m unlikely to do justice to the published machinations and financial jiggery-pokery going on with the fictional entity known as Vero Software Plc.

Let’s be clear, I am not referring to the their software, history, products, officework, and daily commutes and screen computer work that a number of human beings do to earn a living, which undoubtedly do exist.

This is a question of the impenetrable corporate legal incantations and gameplay done among absentee owners and fincancial wizards that merely determins who sits in the boss’s seat and directs the workers in the coming months and years.

As they say on 17 May 2010 in a 30 page document:

The sole manager of BV Acquisitions S.à.r.l. (“BV Acquisitions”) and the board of directors of Vero Software plc (“Vero”) are pleased to announce that they have today reached agreement on the terms of a recommended cash offer by BV Acquisitions for the entire issued and to be issued ordinary share capital of Vero to be effected by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006

BV Acquisitions is a private company incorporated with limited liability (société à responsabilité limitée) on 3 March 2010 and organised under the laws of the Grand Duchy of Luxembourg. It is registered with the Luxembourg Register of Commerce and Companies under the number B 151775 and has been established specifically for the purpose of implementing the Proposals. [at the precise address 16, rue Jean l’Aveugle, L-1148 Luxembourg]

The current authorised share capital of BV Acquisitions is EUR12,500 divided into 12,500 issued shares of EUR1 each, which are held equally by each of Battery VIII and Battery VIII Side Fund.

BV Acquisitions has not traded since its date of incorporation, has paid no dividends and has not entered into any obligations other than in connection with the Proposals and the financing of the Proposals. The sole manager of BV Acquisitions is Mr. R. David Tabors. BV Acquisitions does not currently have any subsidiaries or subsidiary undertakings.

Battery VIII and Battery VIII Side Fund are limited partnerships established on 2 July 2007 and 15 August 2008 respectively and organised under the laws of the State of Delaware, USA. The funds primarily make equity and equity-related investments within a variety of businesses, principally in the technology sector.

The Battery Funds are managed by their general partners, Battery Partners VIII, LLC and Battery Partners VIII Side Fund, LLC, respectively, which are responsible for all investment and divestment decisions made by the funds. In respect of the Proposals, Mr R. David Tabors is the designated managing member of both Battery Partners VIII, LLC and Battery Partners VIII Side Fund, LLC.

One of the severe failings in corporate law is it’s total inability to distinguish between a completely fictional shell company incorporated in a dodgy jurisdiction, and an actual entity connected with something real (such as employees, livelihoods, and products). These things just get spawned off like bubbles by those in the business. Any form of effective accountability is deliberately obscured by a wall of white foam.

Back to the document:

Reasons for the Proposals and future plans for Vero

BV Acquisitions is confident in the overall prospects for Vero’s operating businesses and key product offerings, but believes that Vero will be better suited to a private company environment, where management will be able to concentrate on the more efficient delivery of their medium term business plan, free from the requirement to meet the public equity market’s expectations. In addition, BV Acquisitions believes that, as a small UK quoted company, with significant overseas operations including Italy, Japan and North America, Vero will struggle to attract the research coverage, liquidity and level of market rating that would make retaining its existing listing worthwhile.

BV Acquisitions intends to seek to continue to grow Vero’s contracted revenue base (both organically and, potentially, by identifying attractive bolt-on acquisition opportunities), whilst improving overall trading performance and investing in the development of the existing product portfolio. BV Acquisitions believes that it can provide Vero with more stable, flexible and less costly financial support and benefit from the elimination of the many expenses associated with maintaining a UK public listing, thereby enhancing value for its investors in the longer term. BV Acquisitions, on completion of the Offer, will undertake a full strategic and operational review of Vero in conjunction with Vero’s executive management team.

In other words, their whole business of being listed on the stock exchange has been a complete waste of time, money and effort. But we already knew that from their whole New York Stock Exchange listings debacle.

What’s going to happen to the staff?

BV Acquisitions has given assurances to the Vero Board that, on the Scheme becoming Effective, the existing rights of employees of Vero, including pension rights, will be observed, at least to the extent required by applicable law.

This is a non-statement. They’re hardly going to write that they are not going to observe the law.

But there’s a little bit more.

Further, BV Acquisitions has no current intention, subject to the outcome of the strategic and operational
review referred to in paragraph 3 above, to change the principal locations of the Vero Group’s existing places of business and no proposals currently exist to materially change the terms and conditions of employment of any of Vero’s employees. Nor does BV Acquisitions currently intend to redeploy the fixed assets of Vero to an extent that would have a material impact on the business of Vero.

Following the Scheme becoming Effective, the employee resources of the Vero Group will be considered as part of BV Acquisitions’ strategic and operational review process as referred to in paragraph 3 above. The non-executive directors of Vero, Stephen Palframan and Elliot Miller, have agreed to resign with effect from the Effective Date. They will each receive three months’ remuneration by way of compensation.

So it’s to be kept as a going concern.

There’s a subsequent document which lays out the timetable:

Further to the announcement on 17 May 2010 by the board of Vero Software Plc (“Vero”) and the sole manager of BV Acquisitions S.à.r.l. (“BV”) that they had reached agreement on the terms of recommended proposals for the acquisition of the entire issued and to be issued share capital of Vero to be implemented by way of a Court sanctioned scheme of arrangement pursuant to Part 26 of the Companies Act 2006 (the “Scheme”), Vero now announces that the circular containing, amongst other things, the terms and conditions of the Scheme and an explanatory statement (in compliance with Section 897 of the Companies Act 2006), notices of the Court Meeting and General Meeting, a timetable of principal events and details of the actions to be taken by Vero Shareholders (the “Scheme Document”) is being posted to Vero Shareholders today.

I believe this refers to Section 896 of the Companies Act 2006:

Court order for holding of meeting

(1)The court may, on an application under this section, order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs.

(2)An application under this section may be made by—
(a)the company,
(b)any creditor or member of the company, or
(c)if the company is being wound up or an administration order is in force in relation to it, the liquidator or administrator.

The timetable is:

6.00 p.m. on 13 July 2010

Latest date for despatch of cheques (in respect of cash consideration) and settlement through CREST
Voting Record Time 6.00 p.m. on 21 June 2010
Court Meeting 10.00 a.m. on 23 June 2010
General Meeting 10.15 a.m. on 23 June 2010
Scheme Court Hearing (to sanction the Scheme) 12 July 2010
Scheme Record Time

Suspension of listing and dealings in Vero Shares, last day for registration of transfers of Shares and disablement of Vero Shares in CREST 7.00 a.m. on 14 July 2010
Reduction Court Hearing (to confirm the Reduction of Capital) 14 July 2010
Effective Date of the Scheme 15 July 2010
Cancellation of admission of Vero Shares to trading on AIM 8.00 a.m. on 15 July 2010
14 days after the Effective Date

All references to times are to times in London (unless otherwise stated).

The Court Meeting and the General Meeting will be held at the registered office of Vero being Hadley House, Bayshill Road, Cheltenham, Gloucestershire, GL50 3AW on 23 June 2010.

So, that’s that!

A little about the new boss [of the fake Luxembourg company that will own Vero], David Tabors:

Dave has been investing in software and services companies since joining Battery in 1995. His areas of interest span from startups, such as the creation of BladeLogic (NASDAQ: BLOG, acquired by BMC Software) with an entrepreneur-in-residence, through emerging companies such as Vastera (NASDAQ: VAST), to buyouts, such as the take-privates of HighJump Software, Made2Manage Systems, Onyx Software, Knova Software, and Quovadx (resulting in Healthvision and Rogue Wave). Dave has extensive experience with a variety of business models ranging from traditional license software to software as a service, as well as business services companies and exchanges…

Prior to Battery, Dave worked for investment consulting firm Cambridge Associates, where he conducted research on the venture capital industry and evaluated venture capital firms for clients. Dave graduated from Dartmouth College with honors in Engineering.

[On January 11, 2010, Lawson acquired Healthvision, the leading provider of Cloverleaf® integration technology.]

Computer business in America full of stupid names doing silly things with lots of money flushing around.

Anyhow, it’s going to be interesting to see what Mr Tabors makes of the CADCAM business as he flies in from Boston now and then — or however he intends to conduct the business on behalf of this billion dollar fund.

The industry is very fickle, and he is unlikely to be aware of its quirks as his list of past experiences does not include any companies connected with it.

The quirks include the events such as NC Graphics being swallowed up by PTC a few years ago, only to be regurgitated fully intact after two years, having had not one single subroutine in its codebase scavenged into any other part of its temporary owners. NCG is very relevant because it’s built around a fork of one of the important assets of Vero, the Machining Strategist kernel, so the market value of it should now be known — unless the market has failed. Which it probably has. (I would not be surprised if an OEM is licensing the kernel for more than it cost to buy.)

Mr Tabors does have options that are new. He can clean out the Vero management if they are incompetent. The Vero management was unlikely to sack themselves, even if everyone including themselves knew they were incompetent, because they had control of the company and ran in their own interests, not the shareholders’, as is standard practice. And who are they going to be replaced by?

Are we going to see job adverts for replacement executives in the trade press? Or maybe he’ll contract the work out to the UK’s wondrous management consultancy industry, who will no doubt run it into the ground in return for a vast pay-as-you-go fee, as they seem to do with everything else they get their paws on.

Then, ultimately, there will be the sell-off. This move is certain. Battery Ventures does not intend to remain in the CADCAM business. It’s just a temporary visitor. In which case, who is possibly going to buy Vero off them in a few years time?

This is an interesting question.

Let’s ignore the possibility that they con some other know-nothing investment firm to buy it, because that looks the same as transferring it to another manager within the same investment company. We want to imagine how it’s going to return to the industry as it eventually must do.

There must be some consolidation among the companies in the future. CAD has consolidated around a single kernel (Parasolid), whilst CAM remains an uncompetitive muddle with everyone doing their own things. I only really know about the Machining Strategist kernel. If that has any ownership value to a player in the industry, the near equivalent could easily be bought from NC Graphics over in Cambridge for a competitive price.

Most competent software companies won’t have any interest in buying it, because they already have their own software that does many of the same things. Perhaps its pencil milling is marginally better than, say, the one in Delcam’s software, but Delcam are hardly going to buy it at full price just for just that bit (and if they were interested in knowing how it worked, they could phone up and ask me). So it’s only worth the full price to those companies who don’t now have their own 3-axis CAM software.

And if a CAM company doesn’t have its own 3-axis CAM software, there’s a reason for it. Either the management fears software development, or they have had bad luck in hiring programmers to write the routines. (Hint: the ones published in academic journals are absolutely flawed, so it is not surprising if people get mislead by it into spending years writing something that doesn’t work!)

Many won’t be interested in buying at any price, because they perceive source code as a cost rather than an asset.

As I said, I don’t know anything about the rest of the Vero business, but it could probably be modeled as a normal niche software market, with a customer base willing to pay at a going rate to avoid the cost and risks of changing to another supplier. It’s possible the customers could be sold out to another company and forced to convert to a supplier not of their own choice, in which case there’s no advantage in sticking with it and they might swap to NCG for consistency, or go looking more widely in the market. (There must be a technical business term for this rate of customer fall-out which I don’t know.)

There are not a great number of opportunities. Battery Ventures will probably get surprised by this, unless they have someone already lined up who lacked the business ability to buy Vero themselves directly without an expensive middle-man.

This is going to be fun to watch. You can find my phone number on thestraightchoice website.


  • 1. Freesteel&hellip replies at 21st June 2010, 7:23 pm :

    […] to the Vero Sellout, I have been trying to make the figures add […]

  • 2. Freesteel&hellip replies at 8th January 2013, 1:49 pm :

    […] Sescoi International, but that ain’t the truth. It would be more accurate to say that BV Acquisitions S.à.r.l. (a Luxembourg shell company that probably exists for tax reasons) acquired the company that makes […]

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