Hi everyone,
After LVT announcedthe resolution of the CYCL dispute I wanted to assess future theoretical andlikely liabilities from prior acquisitions. I am especially worried about cash.All prior acquisitions have concluded with 100% of the targets being purchasedshowing the likely intent here. Only two have outstanding liabilities: BindTuningand My Net Zero.
Original BindTuningDeal
LVTcurrently owns 19.9% of BindTuning paid for with A$378k in cash and 3.16M shares.The initial announcement stated the remaining 79.1% would be acquired if a (veryunrealistic) target was met in Dec 22. Or “If the ARR milestone is not achieved, both parties will agree to an alternative payment amount.” in December 2023.
Later provision notes stated “The purchase price payable will equate to 2.5x Annualised Recurring Revenue, adjusted for the initial purchase amount and the cash on hand at the date of purchase.” So we will use that.
BindTuning in FY20 did A$1.4M and A$260K net profit. The attributable (19.9%) profit from Bind Turning increased from $8k in 2021 to $38k in 2022. So it appears that its doing well. Assuming ARR has grown c.50% to c$2.5M then the liability is $6.25M. Which is close to the currently provisioned $5.8M. This is due 50% in shares and 50% cash (at 12c /share).
So theoretically LVT in December 2023 will have pay Bind Tuning $2.9M in Cash and 24M Shares.
With the current cash balance that could be the end of LVT. So, there is no way the board or 1V is letting that being paid in full. And based on this I looked to CYCL AG to see what prior negotiated outcome was achieved.
Lessons From CYCL
CYCL upon investment was doing revenue of $14.1M and ARR of $4.7M and got acquired for $19M. This was $6.3M cash and $12.6M stock (42.6m LVT shares). Plus up to $13.2M (25% cash and 75% shares) if they hit performance targets. This $13.2M was also the amount originally provisioned for. This provision was written down to $6.8M in 2022. While its not clear if these performance targets were hit, I believe some component must have been otherwise there was no need to keep the provision past the milestone expiries.
However last week LVT settled the dispute with CYCL for $550k USD ($770k AUD) and 25M shares (A$250K at current price). So $1M! 1/13th of the original provision and 1/7th of the most recent provision(!) even after CYCL formally begin litigation proceedings in a US Court.
Implications for BindTuning
Based on the outcome LVT achieved with CYCL. I believe they can similarly play some hardball with BindTuning
Further, unlike CYCL, which was purchased with an earnout and the shareholders just wanted to be paid what they were owed. BindTuning founders and team still own 80% of their shares. Realising LVT can’t pay I imagine they will either cancel the deal, or if integration has gone too far, accept the entire trade in shares (maybe even 50-100M shares) and work together.
So worst case scenario is $2.9M cash and 24M Shares, and likely case is maybe $1M cash and 50M shares (5% dilution).
My Net Zero
The other liability is MNZ. LVT bought 19.9% of MNZ in 2021 for A$985k
Then in October 2022 signed an agreement to buy the remaining 80.03% for $10M with revenue targets of $25M in 18 months (March 2024). The first tranche payment increased ownership from 19.9% to 54.13% for $4.26M in LVT shares at 6.25c, which is 68m shares.
The remainder must be purchased over the next 18 months (so due by March 2024) for $5.73M. However, luckily this is at LVT’s election if it is cash or shares, and has a share floor price of 6.25c. Therefore the total potential dilution here is 120M shares or aprox 10% of the capital base.
This is also assuming MNZ hits very unrealistic targets of $25M in revenue. Whereas according to the Dec 2022 numbers is currently at an eye watering $63k.
Therefore worst case scenario is 10% dilution, and likely case could be 1-2%. With no cash impact.
Conclusion
Based on myconclusions for BindTuning and MNZ I believe DV will be able put these liabilities to bed in late 2023 / early 2024 without a terminal impact on cash.
