Quindell’s troubles put founder Rob Terry’s past in spotlight

In November last year, an ambitious British start-up called Quindell raised £200m in a share issue with the promise to “revolutionise the insurance industry”. Its charismatic founder Rob Terry attracted not only small-money private investors, but institutions such as M&G and hedge fund Algebris.

A year on, Quindell’s shares have fallen nearly 80 per cent, following a shortselling attack. Mr Terry and two of his closest allies on the board have been forced out.

“This is a particularly painful case for those of us who really care about the reputation of Aim,” said Paul Jourdan, chief executive of fund managers Amati Global Investors, referring to London’s junior stock market, on which Quindell is traded.

Mr Jourdan refused to invest in Quindell. But other investors will wonder if they missed critical warning signs.

A Financial Times analysis of public documents has revealed that Mr Terry’s business career is marked by financial misfortune, including share price crashes at two other companies he led. He has also been a director of at least four other businesses that have gone into receivership during his tenure as a director or shortly thereafter.

Mr Terry and Quindell declined to comment for this article.

1993: Westminster Computer Systems
Mr Terry’s first recorded brush with financial difficulty came when he was aged 24. He became a director of Westminster Computer Systems, which developed image applications software, and of Patent Systems Distribution, its reseller, in April 1993.

But within six months, both companies were insolvent with combined debts exceeding £500,000.

Neither business was mentioned in Quindell’s listing prospectus in 2011.

1996-1998: SCS Consulting and Lava Systems
Mr Terry’s next focus was SCS Consulting, a British company that sold image-viewing software from a Canadian company called Lava Systems. Mr Terry was the company’s biggest shareholder.

SCS became Lava Systems’ biggest customer, and in 1997 the Toronto-listed company bought it.

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The acquisition was the first major personal success for Mr Terry, who later said he received £5.8m from the deal. But it would prove disastrous for Lava Systems. There was a gap between SCS’s recognised sales and the cash paid. By the end of 1997, the company owed Lava Systems C$7m, mostly in accounts receivable.

Six months after acquiring SCS, the Canadian company said that the deal had left it with nearly $5m of unsold inventory, reducing gross margins by a third. It swung into a pre-tax loss.

By the end of 1998, both Lava Systems and SCS had called in the receivers. Mr Terry resigned as a Lava executive in October of that year, and as a company director on December 1. Days later, the company was liquidated.

1998-2003: Innovation Group
Almost immediately after leaving Lava Systems, Mr Terry turned his attention to Innovation Group, an insurance outsourcing and software company. The business said it wanted to be “the leading global supplier of insurance e-business solutions”.

Mr Terry listed his new company on the London Stock Exchange, just 18 months after Lava Systems went bankrupt. The initial public offering raised £55m – valuing the company’s equity at £241m, or 80 times its annualised profits for the previous year.

He said Innovation Group could be “worth a billion pounds”. He oversaw at least 25 acquisitions, at a cost of £380m.

When the terror attacks of September 11, 2001 shook the insurance market, Mr Terry said Innovation Group would beat analysts’ forecasts. But in November of that year, the company reported that its earnings per share had turned negative.

Mr Terry had forecast that he would not sell any more stock until four years after the flotation. But a week after the disappointing results in November 2001, he and Steve Scott, the company’s finance director, hedged a portion of their shares, while also entering into a stock loan agreement, raising an estimated £6.4m.

Analysts raised questions about the fact that it had acquired companies that were also its customers. At the time, however, Mr Terry replied: “We do not consider our counting practices to be abnormal.”

In March 2002, Innovation Group said that it would meet the City’s forecasts under current accounting policies. It then changed its accounting policies – and shares fell 30 per cent.

Later that year, Innovation Group admitted overpaying for the acquisitions overseen by Mr Terry. It wrote down goodwill by £350m, and recorded a pre-tax loss of £391m.

By the time the founder was forced from the board in 2003, investors would have lost 93p for each £1 invested in Innovation Group’s IPO.

Mr Terry received a £500,000 pay-off, and sold an additional £5m in shares.

2003-: Returning to the fray
When Mr Terry left Innovation Group, he signed a non-compete agreement that briefly prevented him from working in the insurance claims business.

He bought a Hampshire golf course for £2.5m, renamed it Quindell Golf & Country Club and invested £4m. The property was sold for just £2m in 2013, according to the UK’s land registry, although it is unclear if Mr Terry sold other assets separately.

Another venture also went sour. In 2006, Mr Terry became a director of Turing SMI Group, an IT services company. When it later went into liquidation, Turing’s liquidators tried to reclaim £590,000 from Mr Terry and his company Quindell. They said the money had been paid in compensation for their loss of office, a claim that was disputed by Quindell.

In 2011, the company was listed on Aim. The move did not surprise Mr Terry’s supporters. “A lot of people would think it’s a dangerous thing in the insurance industry, but he is a visionary leader,” said John Birkmire, a former director at Innovation Group.

Quindell’s staff bore many similarities to that of his previous, failed businesses. Its chief executive, finance director and senior non-executive director had all worked at or advised Innovation Group.

More familiar faces would crop up during an acquisition spree. Quindell paid more than £200m for Himex and Ingenie – telematics companies led by Hassan Sadiq and Richard King, respectively. Both of them are former directors of Innovation Group. Mr Sadiq had previously sold businesses to both SCS Consulting and Innovation Group.

Mr Terry argued that, by buying businesses from trusted associates, Quindell could ensure efficient integration and synergies. But shortsellers noted that Quindell, like Innovation Group, was acquiring companies that were also customers.

But perhaps nothing was so reminiscent of Innovation Group as November’s share deals, and the board’s subsequent decision to force out Mr Terry from the company he founded.

Quindell’s shares closed lower at 55.5p on Monday, their lowest for three years. Investec and Fidelity have sold stock, but remain large shareholders, as does M&G. But their bet against history looks unlikely to pay out.

What they said:
“There were many unanswered questions [about Innovation Group] . . . We appear to have seen a repeat of similar behaviour again” – Paul Jourdan, Amati Global Investors, November 2014

“Everyone gets a second chance. That’s the beauty of being an entrepreneur” – Davide Serra, Algebris Investments, April 2014

“[W]e believe that Robert Terry and his team have learnt from previous mistakes” – Polygon Global Partners, May 2014