Smiles Inclusive founder watched $10m 'evaporate in his hands' before selling up

Smiles Inclusive founder watched $10m 'evaporate in his hands' before selling up

What began as an IPO to bring more than 50 dental practices under one roof became a "car crash that I can't get out of" for Smiles Inclusive (ASX: SIL) founder Mike Timoney (pictured), who this month sold all his shares in the company for $106,249.

At IPO in April 2018, those same shares were worth $9.65 million.

In an exclusive interview with Business News Australia, Timoney describes the debacle as a personal tragedy and has little faith the company - suspended from ASX trading since March - will survive.

"They were struggling to be a viable company before COVID-19, and I think post-COVID-19 even healthy, viable companies are going to be struggling in the healthcare sector," he says.

"It's not going to improve anyone's efficiency, it's not going to improve anyone's bottom line, and a company's going to take a hit. We don't know how big that's going to be at this point."

Timoney alleges a third of dentists in the group are either on strike or have been "locked out".

One dentist who asked to remain anonymous told Business News Australia payments were arriving extremely late and equipment suppliers were reluctant to deal with the group. 

In mid-May, around the time that Smiles' own cashflow statements indicated its reserves would dry up, CFO Emma Corcoran left the Gold Coast-based group.

Her departure was preceeded a month earlier by the exit of then CEO Tony McCormack, who at the time of writing does not include Smiles on his LinkedIn profile.

The task of leading the embattled group has been left to Michelle Aquilina, in whom Timoney holds great esteem.

"I know Michelle, we've had a good working relationship in the past. I fear it's too little," he says.

"If she had been presented back in March I would have been fully supportive -  we wouldn't have gone through the trauma we have had.

"I think it would be the biggest miracle on the planet if they can survive."

The March event he is referring to was an extraordinary general meeting (EGM) 2019 in which shareholders ousted him and ex-chairman David Herlihy. The situation back then was rotten as well, characterised by disappointing results and a management tug-of-war that included allegations from Timoney that votes were tampered with.

This turn of events was perhaps to be expected. Prior to the IPO Synstrat Group dental business advisor Graham Middleton urged dentists to "avoid this investment", questioning Smiles' growth forecasts and predicting excessive management costs from acquiring so many small dental clinics.

"I make mistakes as well...I don't pretend to be perfect and if I had my time again I would have done some things differently," says Timoney. 

15 months after Middleton's report, SIL shares had lost 88 per cent of their value, its founder had been kicked out and pulled out of a second board bid, and a capital raising was in the works but its adherents would only be disappointed by what was to come - shock unaudited results of losses, and even more shocking audited ones

Because of compulsory two-year escrow rules from the ASX for IPOs, designed to prevent what is known as the "pump and dump" promotion of shares, Timoney could only watch while his fortune crumbled.

"When I went through the EGM in March last year, I said to the board that if I had the ability to sell I'd be walking out of this board meeting - I'd be selling my entire holding," he says.

"At that point it was 30 cents a share; it's just been a Greek tragedy for me personally," says the experienced dental executive, whose shares were worth $1 at IPO and sold at around the one-cent mark on 7 May 2020. 

"I've been a passenger in a car crash that I can't get out of. I could see it coming my holding was worth $10 million, then it was worth $3 million, and then I sold it for $100,000 just because the big end of town think they know best."

What hit Timoney hard in March 2019 was not only that he was not going to be CEO, but that he would have to stick around and watch the board make appointment decisions he disagreed with.

"My only requirement at the time was that we exercise proper corporate governance, and do a proper executive search and find someone who had the skillset to lead the company," he says. 

"I didn't really have issue with it from an ego perspective, but what I did have an issue with was Usasz [chairman David Usasz] just forcing his weight on us."

Timoney believes the outcome would have been better had he been allowed to sell up his stake in March last year, not just for obvious personal reasons but for the company as well. A great deal of energy, time and money was expended on dealing with conflicts for all parties involved.

"They could have just got on and have done what they did. I mean, they did that anyhow," he says.

There is another cruel twist at the end of this story. Timoney's shares were not going to come out of escrow until late April, but he actually had someone approach him to buy his entire holding in February.

"At that time the shares were trading at five cents. So I had to turn away $560,000 in February to go back to the same fire in May and collect $106,000," he says.

"It's just watching money evaporate in your hands. It's very, very frustrating."

Timoney's shares were sold to Phi Long Investment Pty Ltd, effectively doubling its stake in the company to 14.5 per cent. 

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