Outsell Ponders if divine's Faxon Unit is the Enron of the Info Industry
Information Industry--divine
Source: Outsell E-Briefs Outsell Ponders if divine's Faxon Unit is the Enron of the Info Industry Outsell, the well-known info industry consulting firm, published the following commentary about the divine/Faxon mess in a recent e-mail update to customers. David Curle has allowed the message to be reprinted on The ResourceShelf.
--- divine's Faxon Unit: The Enron of Our Industry?
Subscription agent Faxon, part of divine, Inc., has apparently shutdown certain operations and is preparing for some sort of reorganization. The company has not yet released an official statement*, but here's what we know so far: - Customers have been referred to a Chicago firm, Development Specialists, Inc., which consults in reorganization, bankruptcy, and turnaround management. DSI is making no statements but promises a clarification of the situation next week.
(Note: Since This Message Was Sent, divine Has Released a Statement)
- In the meantime, libraries are scrambling to figure out how their subscription needs will be filled for next year, with few options or alternatives. Customers have been told to find alternative vendors; meanwhile, many of them have placed orders for 2003 - and sent in advance payments - that have not been placed with publishers.
- We know that Faxon has not paid a number of publishers for their 2002 subscriptions, nor are they receiving any orders for 2003 subscriptions.
- Faxon's London, Ontario and Montreal offices have been closed and employees laid off.
- This morning, EBSCO announced that it would be acquiring the European operations of RoweCom, Inc., part of Faxon/divine that serves Europe. In that announcement, EBSCO states that divine has announced its "intention to exit the content subscription business." We have been unable to obtain any such statement from divine.
- Financial perspective: divine's cash was down to $30 million this June. In August, it received an equity investment of $61 million from Oak Investment Partners. One month later, the company reported total cash of $61 million - the equivalent of the Oak investment, but the $30 million of its own cash from June was gone. Current market valuation has the company worth $28 million, less than half of the Oak investment. This whole fiasco is sad and troubling, and it reminds us of the other business scandals of our day. The implications are many and distressing:
- Lots of innocent people are going to be caught high and dry. Faxon customers will have a hard time scrambling to obtain services from the remaining industry players, EBSCO and Swets Blackwell, with no notice over the holiday season.
- The Enron-like aspect of this: Where is the cash? This business has always been based on customers paying in advance for their subscriptions, while agents pay the publishers only at the end of a calendar year, and get by on the float in between. Now the big question is - where did all that cash go? It's on divine's balance
sheet as deferred revenues, and the deferred payments have not gone to the publishers - so where has divine stashed it? Regardless of what happens with divine, we expect the practice of pre-payment will be gone for good after this episode.
- The publishers who have been stiffed by divine are also in a good position to help ease Faxon customers through the crisis, by continuing to honor subscriptions until the mess is worked out. Once again, we see a lot of collateral damage caused by companies - and an entire industry - done in by ego and hubris. We're all for grand schemes and revolutionary visions in our industry, but they don't get anywhere without a healthy dose of financial reality. Let's hope that divine is the last of the failing dot.coms, and last of the Enrons, in our industry. Our hope is that a buyer for the Faxon unit will quickly emerge, one that will be able to restore services, and trust, to both buyers and publishers. (From Outsell E-Mail 12/20/02) UPDATE (1/6 & 1/9) Information Today Has Updated Their Story With News of An Ad-Hoc Creditor Group Being Formed See Also: Additional Stories on this Topic Can Be Found Under the 12/22/2002 Postings See Also: Full-Text of RoweCom Statement to Customers See Also: Chronology of divine Acquisition and Major Announcements (via Multex) See Also: "Libraries Left in the Lurch" (via Crain's Chicago Business) See Also: Direct to the Outsell Web Site
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