Irexchange pressing ahead with IPO despite legal claim

Sue Mitchell and Liz Main
Feb 5, 2019
AFR
Online grocery marketplace irexchange is pressing ahead with a $17.5 million initial public offering even though a major investor is suing the company and alleging its prospectus is misleading.
Irexchange aims to disrupt the grocery, liquor and pharmacy wholesaling markets by enabling independent retailers and pharmacies to order stock directly from suppliers through an online trading platform, cutting out middleman wholesalers such as Metcash.
In a prospectus lodged just before Christmas, irexchange claims it has signed up more than 600 independent retailers – 50 per cent of whom are trading on the platform regularly – and 170 food, grocery and liquor suppliers including Unilever, Proctor & Gamble, Reckitt Benckiser and Carlton & United Breweries.
Irexchange CEO Brett Charlton is pressing ahead with a $17.5 million IPO, saying he has ”rock-solid confidence” in the prospectus. Kate Geraghty
The company has also signed a memorandum of understanding with pharmacy wholesaler Sigma, which has taken an equity stake in the three-year-old business, and is in talks with potential partners to enter the China cross-border e-commerce market.
However, as reported in The Australian Financial Review on Saturday, convertible noteholder James Baillieu is suing the company, its advisers and four former and existing executives and directors, alleging misleading and deceptive behaviour, after unsuccessfully demanding the company return his $1 million investment.
Mr Baillieu, the chairman of ASX tech company BidEnergy and a nephew of former Victorian premier Ted Baillieu, has alleged the company made false representations about customer numbers when he invested $1 million in August 2017 and says it is making false claims about customer numbers in the prospectus.
Mr Baillieu, who was set to join the irexchange board as a non-executive director late last year, alleged he was doing due diligence when he discovered that only 135 retailers were trading on the platform on a monthly basis. He also alleges more than 200 retailers have cancelled, a figure not included in the prospectus.
He has contacted the Australian Securities and Investments Commission setting out his concerns about the accuracy of the prospectus.
ASIC ‘must act’
“This is a situation where ASIC has to act quickly,” he said on Monday. “Investors should expect to get absolutely nothing, except the right to sue those responsible for the deception.”
Chief executive Brett Charlton said the offer, which was due to close on Tuesday, had been extended for another week because of Chinese New Year.
Mr Charlton, who took the helm in October from Clive Yoxall, has strongly rejected Mr Ballieu’s claims and said the company told investors at the weekend that it had “rock-solid confidence in the prospectus”.
After checking numbers at the weekend, the company reiterated it had signed up 607 retail stores (not 607 individual retailers) at the time of the prospectus, half of whom were trading “regularly”.
“The other 50 per cent is where you have a bunch of customers who have just been onboarded and have never traded or made their first order, or those who have placed an order but then drifted away because it’s not right for them,” he said.
“I can guarantee you he [Mr Baillieu] is confused because we know what our numbers are and we’re not going to put a prospectus out there that talks about something that’s as absolutely critical as that and makes false claims,” he said.
The start-up lost $16.2 million last year on revenues of $13.2 million after losing $18.3 million on sales of $4.3 million in 2017. It hopes to break even on earnings before interest, tax, depreciation and amortisation18 months after the IPO.
If the offer is successful, irexchange, which has raised about $40 million from investors over the past few years, will be valued at $74.3 million. The company plans to use the funds to expand into new states, new channels including pharmacies and China cross-border e-commerce and to attract more suppliers.
irexchange has only $130,000 cash but Mr Charlton said if the IPO was unsuccessful the company was confident it could rely on existing investors for further support.
“Based on the conversations I’ve had over the weekend, there is no question that our supporters would help us keep going,” he said.