Being AI chairman Sean Joyce: "If Clare Capital are upset about us having two legacy businesses, they’ll be having fits in a year or two because we would love to have dozens of legacy businesses".
The chairman of Being AI has fiercely defended the company after criticism from an analyst over its branding as an artificial intelligence business.
Sean Joyce says his firm will use AI to transform the companies already in its stable and other “legacy” firms it plans to buy - as well as providing AI consultancy in a new line of business with huge potential.
Joyce has hit back after comments made by Clare Capital in a research note issued on April 8 which questioned why Being AI was marketing itself in that fashion, given the “unusual” make-up of the group.
“We feel the need to call out how Being AI is presenting itself,” Clare Capital said.
“Being AI may grow into a successful AI business - but as it currently stands, it’s a legacy mail services business with a small school attached.”
Being AI reverse-listing on the NZX followed Ascension Capital’s acquisition of the Being AI group of businesses (post-transaction, Ascension rebranded as Being AI).
On April 3, after shares had tripled in value to 7c, the stock exchange’s compliance and enforcement entity, RegCo, issued a price enquiry and encouraged investors to access information relevant to the listing.
The following day, under a measure introduced late last year, Being AI became the subject of RegCo’s first-ever ‘trade with caution’ alert.
The statement said Being AI shares had risen from 1.7c (on April 2) to 7.7c. It noted the acquisition of the Being AI group of businesses, approved by shareholders on March 28, was undertaken “at a valuation equivalent to $0.025 [2.5c] per share”.
RegCo “strongly urged” investors to read documents released by Being AI ahead of the listing, including the independent appraisal report. The valuation numbers in the report had been eclipsed by Being AI’s surging share price, which continued to rise. Shares were recently trading at 11.3c for a market cap of $211.1 million shortly after the alert (this week it has pulled-back to 8.3c).
A NZX spokeswoman told the Herald, a ‘trade with caution’ alert could be issued if: “We observe trading in a security that appears untethered to movements that could be reasonably expected in an informed market - with trading having elements of ‘meme stock’ behaviour - and we are not satisfied that a previously issued price enquiry is appropriately moderating that trading”.
During a Herald interview, Joyce emphasised that the ‘trade with caution’ statement was a no-fault notice. The earlier price enquiry had not found his firm in breach of any of the exchange’s trading rules or disclosure requirements.
After the April 4 price enquiry notice, Harbour Asset Management’s Shane Solly told the Herald that the NZX issuing a “speeding ticket” was “constructive”. Solly said that, in his view: “The Being team has to step up and be transparent, not just change its name and stick AI on the end of it”.
The transaction brought together three separate businesses.
1) Send Global
Called “a legacy mail/courier services business that was previously listed on NZX’s NXT market as G3 Group” by Clare Capital and “an expert in physical distribution” that utilises third-party reseller agreements by Being, with $38m in annual revenue and ebitda of $2.6m*. Independent valuer Armillary gave Send a valuation range of $22m to $25m, with a mid-point of $23.8m. It was valued at $25m in the Ascension transaction. Clare Capital valued Send Global at $12m to $24m.
Clare Capital said Send revenue had “fallen from $52m in FY2017 to $38m currently, in a declining mail environment”, while “ebitda in recent years has been consistently around $3m”.
Joyce said the business now known as Send had grown over the past three years and the revenue was adjusted for a shift in its composition.
“The only reason the reported revenue decreased from $52m seven years ago is because, following the G3 Group being privatised, the business split. A former business partner took the offshore operations, while the New Zealand operations were retained and named Send Global,” Joyce said.
2) Age
Described as “a small, loss-making private school in Takapuna” by Clare and “a boutique urban school” by Being AI (with a 100-student limit), with $2.3m revenue and a $0.1m ebitda loss. Armillary, gave Age a valuation range of $9.8m to $15m, with a midpoint of $12.8 million. The Ascension transaction valued the school at $15m. Tech commentator Peter Griffin said a more typical play would be to create a platform that could be used by all education providers - like Kami - rather than “dealing with parents and all that stuff that goes with running a school”. Clare Capital valued Age at $2m.
After Clare Capital issued its note, Being AI entered a $200,000 deal to buy the assets of the Villa Education Trust, including a small private school called Mt Hobson School (whose roll was put at 145 in a November 2022 ERA review); the rights to manage two special character schools, one in West Auckland and the other in South Auckland; management arrangements for the Mt Hobson campus in Kaitāia; and the intellectual property rights of the project-based curriculum owned by Vet. The transaction would take the number of students managed by Being AI’s education division to 300, an NZX filing said.
Clare Capital partner Alex Gordon said the Vet deal did not substantially change his firm’s view. He wanted to see more information about the transaction, including the online school’s revenue, whether any debt was taken on, and whether the transaction was in cash or shares. Joyce said he could not give any additional information to the Herald at this point, citing continuous disclosure rules. There would be an update to the market in late May.
3) Being Consultants
Described by Clare as: “A new venture targeting a specialisation in AI services and products, incorporated six months ago”. Being Labs and Being Ventures were created around the same time, under Being Consultants Ltd.
The Ascension transaction valued the unit at $5m - plus “a contingent consideration of up to $35m” linked to share price performance, which would trigger more shares being issued to Being AI chief executive David McDonald. Armillary did not give a value, saying: “We understand that BCL has entered into its first commercial engagement with customers. However, given that it has only existed a few months as a corporate entity, there is no meaningful financial information available.”
Joyce told the Herald that Being Consultants had a team of seven highly skilled experts in AI who have developed and are developing a range of AI solutions and services.
He said he could not comment on the division’s revenue, or name any customers who had been signed, citing continuous disclosure rules. He said Being Consultants is already implementing AI services and is in negotiations with a number of larger national and multinational companies to provide AI services and solutions.
On BusinessDesk’s Business of Tech podcast, McDonald said Being Labs was creating patentable technology. It’s territory he’s been in before. He founded Altered State Machines (ASM), which raised US$11m ($18.6m) in a March 2022 funding round before being sold to Futureverse for an undisclosed sum later that year. ASM created a protocol to “train and own an AI as an NFT [non-fungible token]. Examples of its technology in action include the ability to place cryptocurrency bids on “ASM AIFA [Artificial Intelligence Football Association] All Stars”.
McDonald said Being Consultants could help a firm deploy an off-the-shelf AI solution, such as Microsoft’s Copilot - the sort of project he saw accounting for about 95 per cent of the market - to more involved work, such as helping develop and train a bespoke AI system.
Griffin applauded Being AI’s arrival as a new local contender,
But he also described Being Labs as being at a “skunk works” stage (an affectionate industry term for an operation with pre-release products, still under wraps) while Being Consultants would “jump into a pond” already occupied by locals like AI specialist Super Human, IT services firm Datacom, Accenture and other multinationals.
Joyce said Clare Capital’s use of “legacy business” to describe Send Global and Age was “intended to insult us. But if Clare Capital are upset about us having two legacy businesses, they’ll be having fits in a year or two because we would love to have dozens of legacy businesses.”
He said: “Our model is to acquire more and more legacy businesses - with a view to optimising them with a combination of old-school investment banking initiatives for improving the underlying business and growing them through complementary acquisitions and then optimising their performance through the implementation of artificial intelligence and advanced technologies. [To] just have an AI solution independently of business is too narrow a business model.”
Joyce said continuous disclosure rules prevented him from talking about Being Consultancy deals.
But he could talk about its personnel.
“We have a fast depth of AI experts within our operation who have existing operations, leads and contacts and projects they’re working on.
How many of those experts does Being have onboard?
“We have seven. They’re senior executives from some of the large consulting firms. They have very wide networks. Some of them are international-based. You only have to look at one of our independent directors, Joe Jensen - 38 years a senior vice-president at Intel. He ran a business that generated US$2 billion. ”
The Arizona-based Jensen was vice-president of Intel’s Internet of Things Group and general manager of its retail, banking, hospitality and education business between 2011 and 2021. Before that, he held a series of senior roles with the United States chip maker.
Jensen and others brought “huge amounts of intellectual capital and a huge network of technology businesses”, Joyce said. “We haven’t just up and got guys off the street and said, ‘Let’s call us an AI company’.”
* Clare Capital partner Alex Gordon said, “For Send Global (formerly G3 group), we used the G3 full-year results to March 2023 (in the G3 Annual report), then adjusted for the six-monthly results at September 2023 including our own assessment of ebitda calculation. We got similar but not identical results to what Being AI notes itself in its Listing Profile and similar results to the numbers in the Independent Appraisers report. For Age, we used the figures in the Independent Appraisers report for the nine months to September 2023, but annualised to a full year.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
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