@Wide eye,
Good call.
Having had a most happy experience as an AVA shareholder a few years ago, I'm familiar with that company.
And funnily enough, around 3 months ago that's who I had fleetingly thought might be trying to bid for a block when a broker called me advising me that he had a buyer of size and wanting to know if I'd be interested in tendering my stock.
But when I asked what price we were talking about I got the standard broker kite-flying spiel of, "Well, we aren't 100% sure at this stage but if we offered [price omitted for confidentiality purposes], can you commit to accepting it?"
Which told me that it was probably merely a broker doing exactly that: flying a kite.
But maybe not. Maybe the broker was indeed mandated by a corporate buyer. Who knows?
But if it was a corporate sniffing the wind, I don't think it was AVA the time, given AVA had just a few weeks prior acquired the GJD business, which I think is an inferior business compared to SP3 when it comes to unique and differentiated IP (GJD sells some pretty generic motion detection hardware).
But one thing that GJD has - the thing that SP3 sorely lacks - is well-established global sales channels:
View attachment 4982581So, I think SP3 would slot in perfectly within this particular AVA business unit.
And it is conveniently similar-sized ($8m Revenue, cf. SP3's ~$7m Revenue run rate at present). AVA paid $10m EV for GJD, compared to SP3's current $5m EV.
The difference is that GJD is EBITDA-positive (to the tune of $1.6mpa), but with a few slashes of the restructuring pen to remove duplicated overheads, an acquired SP3 would also become EBITDA-positive.
And AVA has the financial heft to cut a cheque to make further acquisitions: its Current Ratio at the June 2022 balance date was almost 6x, and it had over $15m of Net Cash. The GJD business, subsequently acquired, was 40% funded with AVA scrip so it only consumed less than $5m of the cash balance (about $2.5m of GJD borrowings was taken on), so AVA would still have had at least $7.5m Net Cash after funding GJD.
But apart from the GJD angle, AVA also have established channels into the global infrastructure and defence sectors (SP3 have definitely missed a trick here, but being perpetually cash-strapped means you can't access the decent market opportunities).
This slide reinforces yet again why SP3 would be a far more valuable company in the hands of an adequately capitalised parent entity:
View attachment 4982614And then there's the highly profitable and lucrative global mining industry, just crying out for "situation awareness" technology to enhance safety and productivity.
While AVA had initially been a bit slow in getting its Aura IQ conveyor monitoring system onto mine sites, it has worn out significant shoe leather in making representation and establishing relationships with major mining companies.
Instead of pottering around trying to sell a few ERB's to councils on a piecemeal basis, imagine if SP3 was able to secure a contract with an Anglo American or a Rio Tinto to install its cameras on those companies' various global sites. The individual orders would be for many tens of systems, even over a hundred.
So for all the reasons discussed above, you're right: SP3 would slot into AVA like a hand in a glove, and AVA could take SP3's Revenues to >$20m in one-tenth of the time that SP3 would be able to do it on a standalone basis as a puny $5m company.
That all said, I'd be very surprised if AVA do anything on the M&A front for a while. The company has a new CEO, who took the seat only a few days ago, and presumably he'll want to avoid coming across as a cowboy by buying stuff within his first few months on the job.
And as they say, you never buy shares solely on the basis of a perception of them being takeover targets; they need to be undervalued and enduring businesses in their own rights.
The current SP3 board and management have around 6-8 months to demonstrate the intrinsic value of the company; if it isn't profitable twelve months after the market had entrusted management to undertake the mother of all re-capitalisation exercises, then the "
For Sale" shingle needs to be hung outside the shopfront window.
I'll certainly be doing my part to make that imperative understood in coming months.
.
(20min delay)