Trakm8 acquires Box - a good deal?

This week TRAKM8, a company that I have mentioned several times on my blog, announced a proposed reverse takeover of BOX TELEMATICS, one of the UK leading providers of fleet management systems. The acquisition comprises an initial cash consideration of £3.5m plus the repayment of a Director's loan of £750,000.

The acquisition is being funded from TRAKM8's cash reserves, a new debt facility of £2.5m and a subscription by the Directors for new ordinary shares at a price of 22p to raise £720,000.  They will also raise £1.35m through a placing at 22p for additional working capital purposes.

Is this a good deal for TRAKM8's  existing shareholders?

On the face of it, it looks like an outstanding deal.

Firstly, BOX brings with it £8.4m in revenues and profit before tax of £850,000 (2012). The combined group will boast revenues in excess of £13m (based on 2012 figures) which I would expect to rise substantially in future years. I'm not going to guess at profit, but suffice to say, with the enhanced business opportunities and cost savings for the enlarged group, I would expect profits to be very healthy indeed alongside strong cash flows.

The market reacted very positively to the deal and the share price leapt up over 40% on the news, but even at 29.25p per share the combined group has  a market cap. of just £8.5m, and looks a snip at that price to me.

Both groups have a very strong and healthy recurring revenue base, and TRAKM8 will also have access to BOX's manufacturing and assembly facilities which should help to improve margins for the combined group. In 2012 TRAKM8's gross margins had improved to 72%. In addition BOX brings with it a Blue Chip client base.

The enlarged group will further benefit from synergies, cross-selling  opportunities and scale advantages.

I like TRAKM8's management and believe that they have secured an excellent acquisition here to enhance their organic growth. The Director's take relatively modest salaries whilst seemingly always purchasing shares above the market price, indeed the current placing with institutions and Directors was at a small premium to the share price before the announcement.

They also have a substantial amount of 'skin in the game' and hold around 55% of the enlarged group's share capital. Such a large stake would make me nervous in certain circumstances, but the great thing about this company is that the Director's have consistently shown that they act in the best interests of all shareholders.

Finally John Watkins, Chief Executive Officer had this to say about the deal:-

"The acquisition of BOX is a significant milestone for Trakm8, bringing strong financial and strategic benefits as it will enable us to exploit the growing demand for vehicle telematics in a fragmented market place.

 

"We have been delighted by the positive reaction to acquire this profitable and complementary business and furthermore are pleased to welcome a number of high quality UK institutions to our share register."

 

As ever, no advice is intended or given.

Hopeless cases portfolio takes the lead!!!

Time to re-visit the battle between the FTSE-250 vs. the hopeless cases portfolio which I started back in August 2011:-

http://michae1mouse.blogspot.co.uk/2011/08/very-little-research-but-are-these.html

Whilst the FTSE-250 has done well with a current return of 48.9%, I can reveal that the hopeless cases portfolio has now taken the lead with a gain of 51.6%.

The two top performers (by far) in the portfolio remain ITV and Thomas Cook with gains of 215% and 239% respectively, then comes Vodafone with a gain of 33%. Vodafone has recently risen on the back of it's Verizon Wireless disposal, and shareholders will have had and will still receive substantial amounts of cash back from dividend and special dividend payments.

Next up is Aviva with gains of 26% and 24% respectively. As mentioned in previous blogs I reinvested the profits from the Cable and Wireless takeover into more Aviva shares.

Cable and Wireless Communications is up 22%, leaving Man Group as the worst performer in the portfolio, down by 58% (not forgetting that Game Group went bust).

I don't hold shares in any of the hopeless cases portfolio, and it was started just for a bit of fun. It will be interesting to track it's performance over the next two years though and see what lies in store for the remaining six companies. Please note that I have not taken into account any dividends paid in my calculations, and the comparison is strictly on capital gains.

On another note, there is a great article by John Lee in the FT Money section today on small cap investment. He writes as follows:- "I believe there are two key prerequisites for investment: common sense and patience. When stock selecting, I seek six characteristics: a stable, experienced board with significant directors' shareholdings; cash positive with low levels of debt, and preferably good asset backing; profitable companies with a record of paying a dividend; firms registered in the UK with British governance and audit standards, but with global turnover; a trading activity that I can understand; and optimistic recent comments made by the chairman or chief executive."

Couldn't agree more John. I can't say that I always follow the above criteria to the letter, but for me to make a substantial investment in a company then most of the above is an absolute must.

I've just noticed that John Lee has a book coming out in December entitled, "How to make a million - Slowly". Certainly one that I will buy. It's a shame that he doesn't write a regular column anymore.

Angle rumours and further Director buys at Avanti

It's been a fairly quiet week regarding news stories for shares that I hold, but considerable excitement was generated by a story in 'The Times' on Tuesday, suggesting that potential suitors were circling Angle with the possibility of making an offer(s) in the region of £2 plus.

http://www.thetimes.co.uk/tto/business/columnists/article3871158.ece

"London’s “hot money”, those fast chaps who hunt lucrative takeovers, think they have found an angle.
Angle plc is a small, AIM-quoted, biotechnology company that largely flies under the radar. However, there were whispers yesterday that it had been tapped up, so far informally, by more than one potential bidder. No names were mentioned, but any number of bigger healthcare players may be interested.
As well as specialising in foetal health, Angle owns a subsidiary, Parsortix, which has developed a clever technique to separate blood cells to test for cancer and which already has a patent in America. Angle bulls expect Parsortix to be granted regulatory approval there by the middle of next year, about six months after it receives the green light in Europe.
Though the shares edged a ha’penny lower to 73p yesterday, they have jumped by nearly 25 per cent since the start of this month. At about the same time, trading volumes, the number of shares changing hands, also spiked, itself often a signal that something may be afoot.
The rumoured price that potential buyers have indicated they may be prepared to pay is above 200p, still some distance north of where Angle shares are trading now."

The share price currently stands at 81p. I mentioned Angle as one of my speculative buys back in December 2012, and certainly it appears to be paying off handsomely at the moment.

http://michae1mouse.blogspot.co.uk/2012/12/a-new-angle.html

It seems highly unlikely that the Times would publish the above article without some reliable information, and the company's silence since the article was published appears to speak volumes. Whilst £2+ would be a massive premium to my 27p purchase price, the greedy part of me says that if big healthcare players are prepared to pay £2+ now, what would Angle be worth in a few years time. Many, many multiples of this I expect. However, this assumes that the product will be a raging success and that Angle have the wherewithal and clout to bring shareholders maximum returns by going it alone. Also, regulatory approvals have not been won just yet and validation of the Parsortix device's capabilities are still being awaited from the Paterson Institute.

If the rumours are true, it is a difficult decision for Angle's Directors. Either way it is beginning to look like shareholders will be richly rewarded, although "never count your chickens", as they say.

In other news I noticed that there was a further Director purchase at Avanti Communications on Friday where John Brackenbury, Chairman, bought a further £85,000 worth. The share price has risen well above it's recent lows, but if the company can retain momentum then the shares still have considerable upside potential.