K*Grind to cut costs with new partner
- 18 July, 2000 12:01
Cash-strapped online entertainment network K*Grind has been rescued from the brink of bankruptcy by Asian investors in a deal which will see huge cost rationalisations at the company.
K*Grind has spent the past few weeks searching for new investors after an initial $10 million investment by major shareholders, Macquarie Technology Funds Management, AMWIN, Acer and Wavelink Capital, had dried up.
The company is believed to have burnt around $1 million a month for the last 10 months. However, according to the new investors -- property developer MetroLand and Union Pacific Limited (UPL) -- the spending will stop.
Under a joint venture agreement, MetroLand and UPL will invest an initial $1 million in K*Grind. A further $4 million will be injected following the completion of due diligence and formal documentation. In return, MetroLand and UPL will take a 51 per cent stake in K*Grind.
An additional condition of the agreement was the demand that K*Grind curb its capital expenditure, Gary Lewis, MetroLand company spokesman said.
"The burn rate has to be cut," Lewis said. "We don't intend to be burning $5 million like the previous (market) did."
Lewis said the $5 million cash injection would have to last at least 12 months, and K*Grind's 100 staff would be "under review". "(Staff numbers) will change -- we don't know to what extent," he said.
In addition to the much-needed cash, MetroLand brings to K*Grind a new Asian revenue stream. David Keane, company spokesman for K*Grind said the agreement provides a means to expand into Asia.
"In Asia broadband has happened. In most large organisations its huge," he said.
Keane said additional revenue will also be generated through the sale of K*Grind's proprietary back-end systems, software and solutions. The company is already in discussion with a number organisations, he said.
Despite only raising $5 million in the deal -- K*Grind was believed to be seeking funding between $10 million and $20 million -- Keane said the company will stop searching for investors.
"We think we've done a good deal for the long-term business," he said.