RedstoneConnect (Smartspace Software) AGM and Branding

Today (30/7/2018) I attended the Annual General Meeting of RedstoneConnect Plc (REDS) which was promptly renamed Smartspace Software Plc at the meeting.

Although there were only a few ordinary shareholders present, this proved to be an informative meeting. It was chaired by new Chairman Guy van Zwanenberg. With former CEO Mark Braund having departed recently after major disposals leaving the company to focus on the remaining software business, the new CEO is Frank Beechinor who was the former Chairman. Frank is also Chairman of DotDigital which I also own shares in (a lot more than in RedstoneConnect which has had a mixed history – the focus on software alone makes it more attractive to me and I fully supported the disposals).

I asked whether Frank’s appointment was a permanent one. The answer was effectively “yes” as he is committed to it for 2 or 3 years. This is despite the fact that he promised his wife that he would not take another full-time job back in 2011 (he is only aged 54 according to Companies House though). He is apparently involved with 5 businesses and is stepping back from 3 of them, but remaining Chairman of DotDigital. He hopes to develop the company into a business with a market cap of £300 to £400 million in a few years.

The disposals meant the company now has substantial cash after paying off some debt but they are clearly not going to use it on share buy-backs in the short term. They are looking for acquisitions and would only return cash to shareholders if they don’t use it within the next couple of years. Acquisition will be focused on three areas: 1) Complementary to existing activities where they may pay 1 to 1.5 times revenue; 2) Analytics and 3) Visitor management solutions where their existing offering is quite weak. At present they have too large a focus on big deals (which can be lumpy) and are keen to move into the low-end, entry-level where sales can be automated web-based ones.

They have reduced staff down from 360 to 67 and now only have three buildings – in Luton, Mildenhall and Bristol with no “head office”. There are no overseas offices and they are likely to use partners to expand there.

It’s difficult to determine likely financial forecasts (Cantor have recently issued a positive note on them) – it rather depends on the success of any acquisitions, how much they pay for them, and controlling the overheads. But there are apparently no tax issues from the disposals.

The New Name

I spoke to Frank Beechinor before the AGM and advised him that I thought the new name was a bad choice. This is because I did a search of the UK/Euro trade mark register and found over 500 possible conflicting registrations – although some may be in different “classes” of goods and can be ignored. If you also use Google to search the internet for “smartspace” there are lots of matches. There is even a company listed at Companies House named “Smartspace Software Ltd”. So I think it is very likely they will get a lawyer’s letter sooner or later asking them to desist from trade mark infringement and even registering the change of name at Companies House might be difficult. Here’s a quick lesson in branding and trade mark law taken from my book “Beware the Zombies” (currently under revision):

Brand names for products or companies should be unique What are the key things to remember when inventing a new name? These are:

  1. It should be memorable.
  2. It should have the right, positive connotations with the product/service.
  3. It should be legally capable of being protected by appropriate trademark registrations.
  4. It should be usable as an Internet domain name in the chosen form(s).
  5. It should be unique, original, and not confusing with any existing trademark or brand name, and particularly not with competing or potentially competitive products.

A product or company name that cannot be registered as a trademark should never be considered. Registration of trademarks is relatively low cost and gives you much stronger legal protection (and easier enforcement of your legal rights) than an unregistered mark. Even more to the point, if you infringe someone else’s mark they can pursue a very simple and low cost legal action to force you to stop using the name – the result being that all your web site, sales literature, etc, will need revising and reissuing.

You should apply to register trademarks in all the main legal jurisdictions in which you are likely to trade. There are some differences between the different jurisdictions as to what is legally possible to register, and also as to what would be seen as a conflict with existing registrations, but the following is a good starting point:

  1. Do not use a purely descriptive or superlative mark.
  2. Make sure it is unique, distinctive and is not similar, even phonetically, with existing registered marks. You can search the main trademark registers on-line to do some basic checking.
  3. Try to think up something new and original, which is more difficult than you may imagine. Anyone new to the game of brand name creation tends to come up with the same old names that have already been thought of and previously used. Like “Smartspace”!
  4. Note that you can sometimes take a name that is already in use on other types of goods (trademark registers are based around “classes” of goods). But you need to take care with names that are in widespread use on more than one type of product.
  5. Do not fall in love with your chosen name before you have had it thoroughly researched by a trademark lawyer.

So often I have seen start-up ventures select a name which they think is original—but often it is some half-remembered echo of an existing product name or has been used before because it is so obviously appropriate. They name the business after it, start using it in sales literature and with prospective customers, and yet it turns out to be legally very questionable. You need to come up with several possible names before you go through the full legal search and registration procedure.

You probably also need to check that the chosen name is not already in use as an unregistered trademark (searching the internet can help here) and is not already in use as a corporate name (you can search company name registers also).

One of the big issues is that you will also want to protect the product name as a domain name on the internet, under the “.com” suffix, under any of the common national suffixes such as “.co.uk”, and also possibly with other newer suffixes as “.biz”. Finding a name that is free in all those domains and the relevant trademark registers and is not already in use as an unregistered trademark or corporate name is exceedingly difficult! Note that www.smart-space.com is already in use by another business so endless confusion will undoubtedly result.

Finally don’t start using a new trademark until you are sure it can be registered and is protectable. Having to change the name after a few months of usage will destroy your investment in marketing, product literature, web site design and other activities.

The resolution to change the name of RedstoneConnect to Smartspace Software was of course voted through. The directors said they had committed to change the name and had consulted legal advisors on it and might consider changing it again if necessary. I had offered some advice on the subject from my past experience in this field of inventing and registering marks but it was too late to reconsider in essence.

When I look at investing in small listed or unlisted companies, this is one area I look at because it tells you whether they have got the basics right. Hence my comments on “GB Group” naming in a previous post, and my dislike of “Tungsten” for the name of another AIM company. Unmemorable and unprotectable in both cases.

Registered trade marks are low cost and important to ensure brand recognition and legal protection but few people realize how important they are. The importance of branding is another very key area on which many books have been written but technology companies are often inept in this area.

So I just hope the directors of Smartspace Software have not fallen in love with the new name, or if they do choose to change it again that they do it properly next time.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Tungsten, RedstoneConnect, Proactis, LoopUp, Mello and productivity

ITesterday there was an announcement by Tungsten Corporation (TUNG) that there was press speculation about a possible requisition of a general meeting to remove some of the directors, including the Chairman and CEO, and appoint others. This is likely to come from Odey Asset Management supported by other large investors the company understands. Their combined holdings could give them a good chance of winning any vote, or at least it would be a hard-fought proxy battle.

It would seem that the former CEO Edi Truell is involved in this initiative. It would be most unfortunate in my view if he returns to this business (and I did purchase a very few shares in the company after he departed which I still hold). Richard Hurwitz has done a good job in my view of turning this company from a financial basket case with very substantial annual losses into a sounder one. Revenue has been rising and costs have been cut although profits have been longer to appear than hoped. However the company does report that EBITDA was at breakeven for the first four months of the calendar year. It’s at least heading in the right direction now so I am unlikely to be voting for any such requisition.

I attended the Mello event at Hever yesterday and was hoping to get an update from Mark Braund on RedstoneConnect (REDS) where he was due to present. But his presentation was cancelled. Now we know why because an announcement this morning from the company said he was leaving. Perhaps he wants a new challenge. This was another basket case of a company where Mark turned it around in the two years he has been there. So some investors may not be pleased with his departure and the share price predictably dropped on the news. The new CEO will be Frank Beechinor who is currently the Chairman. He is also Chairman of DotDigital and clearly has experience of running IT companies so it’s probably a good choice. A new non-executive Chairman has been appointed (Guy van Zwanenberg).

The Mello event, organised by David Stredder of course, was held near Hever Castle in deepest Kent. I know some of the roads in the area as I live nearby but even so managed to get lost. Not the ideal location. But it was a useful event otherwise. I did an interview for Peter of Conkers Corner and sat on the panel covering the Beaufort case. Videos of both are likely to be available soon, and I will tweet links to them when they appear.

A company that did present at Mello was Proactis (PHD) with CEO Hamp Wall doing the talking. I was unsure of the potential future growth for the company as I thought the market for procurement software might be quite mature (i.e. most likely users had such a product/service). But not so it seems, particularly in the USA and their target vertical segments. Hamp spoke clearly and answered questions well. He is clearly an experienced IT sales/marketing manager. He said he was surprised though that the share price fell over 40% recently when they announced the loss of two of their largest customers. He thought it might fall 15%. I agreed with him that it seemed excessive. But the market does not like surprises.

Today I attended the AGM of LoopUp Group (LOOP) who sell conferencing software. They recently merged with a competitor named MeetingZone and it looks likely to double revenue and more than double profits if things go according to plan. The joint CEOs made positive noises about progress. The company is chaired by heavyweight Chairperson Lady Barbara Judge CBE which is somewhat unusual for this kind of company – at least heavyweight in terms of past appointments if not lightweight in person.

Tim Grattan was the only other ordinary shareholder present and may do a fuller report for ShareSoc. A disappointing turnout for a very informative meeting as both I and Tim asked lots of questions.

Tim advised me after I mentioned the Foresight 4 VCT fund raising that it was odd that no mention was made in the prospectus of the alleged illegal payment of a dividend. Is this not a “risk factor” that should have been declared he asked? That company and its manager seem to be turning a blind eye to that problem.

There was an interesting letter from Peter Ferguson in the Financial Times today. It covered the issue of a declining productivity growth in the UK and other countries aired in a previous article by Martin Wolf. This is certainly of concern to the Government and should be to all investors because only by increasing productivity can we get richer. Mr Ferguson suggested one cause was the negative impact of increasing regulation. He suggested it has three impacts: 1) more unproductive people appointed to monitor and enforce the regulations, 2) more compliance officers, and 3) less productivity as a result in companies due to sub-optimal practices. Perhaps fortuitously I am invested in a company that sells risk and compliance solutions. It’s certainly a growth area and there may be some truth in this argument. Has MIFID II reduced productivity in the financial sector with few benefits to show for it? I think it has.

But Rolls-Royce are going to improve the productivity in their business at a stroke. They just announced they are going to fire 4,600 staff. But are any of them risk and compliance staff?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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RedstoneConnect Disposals and Royal Weddings

Interesting announcements this morning were issued by RedstoneConnect (REDS). Along with their annual results they are proposing to sell two major divisions that provide systems integration and managed services for £21.6 million in cash. That was actually more than the market cap of the company before the announcement.

That will leave them with a division that provides software for managing office occupancy (for example, hot-desking, car parking, access control, meeting room management, way-finding and other systems). The division had sales of £5.3 million last year. The company has some debt which may be repaid out of the proceeds of the sales but it is likely to have cash of at least £15 million.

The share price jumped on this news and is now about 114p at the time of writing, which values the business at nearly £24 million. It seems investors like the deal but don’t place a great value on the remaining software business.

My view is that strategically this move makes a lot of sense because the businesses being disposed of were low margin ones operating in competitive sectors. The software business is like all such businesses capable of being built around proprietary IP with barriers to entry and high recurring revenues streams. As a holder of RedstoneConnect shares I am therefore likely to vote in favour of this deal.

It is of course possible that the management of the company will blow the cash on poor acquisitions or other diversions but they do seem to have managed to turn around this company which has had a disappointing history, and head it in a positive direction. Adjusted profits almost doubled last year for example. It is claimed this reflects “the successful implementation of the strategy to focus on higher quality, higher margin business”.

The wedding of Prince Harry and Meghan Markle was certainly a well-managed affair, but I was astonished to learn that it might have cost over £32 million even if Mum and Dad did pay a large share of it. Some estimates were even higher. I trust the heart attack of Meghan’s father was not caused by his being asked to contribute. But it’s the “opportunity cost” that really concerns me. For £32 million the parents could have purchased a sound business such as RedstoneConnect for £20 million and still had £10 million to spare for partying.

A number of commentators in the popular press vied with stories of how their weddings were so cheap in comparison. But can you beat mine of 1971 for “cheap”? I and my wife got married at Marylebone Registry Office (if it’s good enough for Paul McCartney it’s good enough for anyone). We then went back to our flat in Maida Vale where we had cohabited for some time for a reception with a few friends and relatives. I don’t recall our parents having to contribute and the cost in total must have been a few hundred pounds at best.

As regards the latest royal wedding, one omission was perhaps the lack of a writer of the skill of Victorian war correspondent William Russell to commemorate the event. This is a sentence from his report of the wedding of the Prince of Wales (later Edward VII) to Princess Alexandra: “With trumpet-flourish and roll of drum, in cadence measured and timed, tossing plume and lustrous train, gold and jewel, cloth of gold, satin and ermine, ribands and stars condense and form a pyramid of colours which tapers in at the door of the chapel and lights up that space which can be seen through the archway, as peer and peeress, Knights of the Garter, and ministers gather in their places”.

That is from a compendium of his reports for the Times recently purchased in a second-hand bookshop. They cover the Crimean war, the coronation of the Czar in Russia, the Indian Mutiny, the laying of the first Atlantic telegraph cable, the start of the American Civil War and much more that I have yet to read. But oh to be able to write like William Russell is one of my few remaining desires.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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