BIXI: From International Distinction to Bankruptcy

On January 20, 2014, BIXI filed a Notice of Intention under the Bankruptcy and Insolvency Act.  Richter Advisory Group Inc. was appointed Trustee.

The public bike-sharing system concept is one of growing success; the largest cities in the world are lining up to introduce the service. The system helps to resolve parking problems and addresses bicycle theft and maintenance issues, all at a low cost to the user, which explains its popularity in urban centres.

BIXI (a combination of two words: bicycle and taxi) is the public bike system marketed and operated by the Société de vélo en libre-service (SVLS), a non-profit organization created by the City of Montréal. SVLS had three principal activities:

  • Manage the City of Montréal’s bike-sharing system as the service operator;
  • Market and sell the BIXI system, equipment (bicycles, docking stations, etc.) and spare parts;
  • Provide call center services for the cities that have purchased the BIXI system.

The BIXI system was conceived in 2007 and was launched in Montréal in 2009. It is an emblem of Quebec’s creativity and expertise in the areas of engineering, technology and design. Cities such as New York, London, Washington, San Francisco, Boston and Chicago have adopted the BIXI bike-sharing system and it has been the recipient of prestigious innovation, design and sustainability awards.

 17 large cities have adopted it
 3,000 docking stations sold
 37,500 bicycles sold

How can something so successful end so badly?

Managing the City of Montréal’s bike-sharing system as the service operator
Managing a bike-sharing service is no way to make money in most cities since it is conceived as a municipally sponsored service. SVLS’s Montréal operations were no exception and heavy losses were incurred starting in 2009.

SVLS also had to finance principal payments and cover financial expenses to purchase equipment (i.e. bicycles, docking stations, etc.) for the City of Montréal (the city provided a loan for this purpose). Normally, cities that adopt the BIXI system purchase the equipment themselves.

Marketing and selling the BIXI system, equipment (bicycles, docking stations, etc.) and spare parts
The strategy to marketing the BIXI bike-sharing system worldwide was aimed at providing profits that would offset the deficits recorded to operate the public bike system in Montréal. Sales soared to $57 million in 2013, and the operations began generating income in 2012.

However, there were some debates as to whether SVLS could legitimately continue operating a profitable activity as part of a municipal organization. The SVLS business plan and strategy therefore continued to be rather vague.

Moreover, the level of profitability and cash flows from international sales were not significant enough to cover operating losses in Montréal, for essentially the following two reasons:

  • U.S. cities, which represented a large portion of the SVLS client base for equipment sales, signed contracts providing for payments to be spread out over the equipment manufacturing period, followed by a final payment once the systems were installed (i.e. months after the start of production).
  • To penetrate this market, SVLS used an intermediary to represent them in dealing with these cities and to operate their bike-sharing system. Within this business model, the intermediary became SVLS’s main U.S. client. Unfortunately, the small size of the latter made the factoring of SVLS’s receivables impossible.

Providing call center services for the cities that have purchased the BIXI system
In order to maximize revenues from the sale of BIXI systems, SVLS decided to maintain its own call centers for certain cities and to set up part of the docking stations itself. SVLS, not benefiting from any real expertise in neither area, these activities became cost centres rather than profit centres.

The last straw

Since the BIXI management software provided by SVLS’s supplier did not meet all needs, SVLS decided to develop its own software. It then implemented this new software for its largest ‘‘customer’’, New York City, introducing it later on in Chicago. The system implementation was problematic and therefore delayed for several months. SVLS had to make significant efforts to remedy the situation.

The restructuring objectives

At the end of 2013, SVLS had a secured debt to the City of Montréal totalling $37 million,  while customers’ and other creditors’ claims totalled $10 million. Moreover, certain customers withheld payments totalling approximately $5.4 million since they were dissatisfied with the BIXI software’s performance. This led to the serious cash crisis.

The City of Montréal no longer wanted to finance SVLS’s significant losses. SVLS had no other alternative but to place itself under the protection of the Bankruptcy and Insolvency Act on January 20, 2014, since it was unable to raise new funds.

The restructuring of SVLS was aimed at stabilizing its financial situation so that it could remain in operation and develop a scenario for the sale of its three areas of activities.

On April 19, 2014, a Quebec investor acquired BIXI’s international arm: the system and equipment sales activities and the call center for $4 million. On April 29, 2014, with the Court’s authorization, the City of Montréal resumed managing the equipment and operations of Montréal’s public bike service and decided to extend this activity for at least another year. SVLS filed for bankruptcy on May 1, 2014.

 
What would have happened if more vigorous restructuring efforts had been made sooner? Nobody really knows.

The two major strengths of the BIXI model were that the system really was one of the best in the world and that once the system was acquired the client was relatively captive as it was quite difficult and costly to change. This is especially evident when we consider that even after SVLS began bankruptcy proceedings, the orders kept coming in.

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Author:

 Pierre-Olivier Strini

Pierre-Olivier Strini
Associate 
Richter Advisory Group
pstrini@richter.ca

 

 

 

 

 In the media :

TVA, Canal Argent
November 24, 2014

 

TVA Nouvelles (see interview at 1:23)
November 23, 2014

98,5 FM, "Montréal Maintenant" with Paul Houde
November 24, 2014
Click here to listen to the interview

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