Ann: Acquisition & Entitlement Offer - Investor Presentation, page-2

In one of my past post I made the comment:

AFL should only pull the trigger on a transaction where there is basically no downside, only upside and the integration of the businesses will be simple and seamless.

If my reading and understanding of the presentation is correct the proposed acquisition is pretty much meets these criteria:

1 - There is basically no downside

AFL is paying $3.004m (ignore earn-out as I am considering downside) in exchange for WIP and debtors totaling $3.7m. And a number of lawyers (at least 4 based on photos in presentation). However, if the WIP and debtors collected in two years is less than 80% of $3.7m (being $2.960m) then the seller will have to pay AFL the difference. So if $2m is collected then the seller will have to pay the AFL $960k. Accordingly, the maximum downside exposure for AFL on the purchase is $44k ($3.004m - $2.960m).

Their also may be employment liabilities for AFL to assume (eg long service leave, holiday etc) but these accumulate as soon as a lawyer is hired. And there is no cost of hiring the team of lawyers (compare with cost of finding and hiring a team of 4 and then building up a practice).

2. Only - Upside

Providing the lawyers turn up to work on the second of April and generate more revenue than they cost then there is upside. And if they meet their budget should be very profitable for the AFL group.

3. Simple and seamless integration

About as easy as it comes. Lawyers to transition to AFL offices. Bit of noise about the web page referrals that I don't really understand but don't think that this is fatal in the scheme of things.

How this is executed will be important as if it is done well then the new management will have a license to make the next acquisition. If not......

Finally, very pleased that Chris McFadden is putting his hand in his (or at least his superfund's) pocket to acquire $250k (1.667m shares) as part of the capital raise. No free options here. One can infer that he thinks it is a good deal and prepared to back himself.

Best,

BSP

DYOR, NFA, GLTAH