Time to face the music, Violin Memory: Upstart's asset auction is over
Who won? Well, we're waiting – and waiting and waiting and ...
Violin Memory's assets were scheduled to be put up for auction on Monday in New York. So far, no successful bids have been announced, although a buyer could be revealed by the end of the month.
Violin filed for Chapter 11 bankruptcy in December after failing to find a new owner to take it under its wing. Since October 2015, two attempts were made to sell Violin Memory and both attempts failed, leading us to suppose the asset auction sale will pretty much be a fire sale. Violin’s updated storage array was announced after the first sale process failed, and that launch didn't result in any revenue increase.
In a Delaware bankruptcy court filing earlier this month, Violin's chief financial officer Cory Sindelar noted:
Beginning in 2014, the Debtor [Violin Memory] experienced a decline in sales due to, among other things, increased competition in its market segment. In 2015, declining sales were compounded by certain performance challenges with the Debtor’s products. While Violin worked to resolve the issues with its products throughout 2015 and 2016, the cash burn it suffered during that period left it with extremely limited liquidity.
We're told a company sale was looked at twice, once in November 2015 and again in September 2016, with more than 200 potential buyers being contacted, “of which no less than 124 conducted business in or related to the Debtor’s industry. To date, both processes have failed to identify a committed buyer or stalking horse purchaser.”
Sindelar continued: “As of January 2, 2017, Violin has $4.0 million cash on hand, and based on my projections, lacks sufficient liquidity to continue operations beyond February 10, 2017.”
He added: “Violin simply does not have the financial resources for a protracted chapter 11 process beyond what is proposed in the Bidding Procedures and, similarly, a reorganization of the Debtor is not viable given the Debtor’s liquidity crisis and its inability to access capital and satisfy creditor claims.”
Sindelar went on to say: “It is my opinion that the value of Violin’s assets is closely tied to and is greatly enhanced by its employees and the greatest value will be realized for creditors in a going-concern sale of substantially all assets.”
There may be light at the end of the tunnel. Bankruptcy court filings state that “a hearing to consider approval of the Sale of the Assets to the Successful Bidder will take place on January 30, 2017, at 10:00 a.m. (ET), before the Honourable Laurie S. Silverstein in the United States Bankruptcy Court for the District of Delaware.”
All should be revealed on January 30. Violin’s journey from starting up through IPO and ultimately to Chapter 11 and an asset auction has been a long, wrenching and troubled road for everybody concerned, not least for the current employees, who could well feel like survivors of the Titanic, floating in lifeboats and waiting for the rescue ships. ®