Hi guys, Just wanted to share with you the outcome of...

Hi guys,

Just wanted to share with you the outcome of discussions I had with Bill. I sent him through some of the acquisition ideas in case the Board of Directors hadn't reviewed them yet such as Global Health Ltd and ICSGlobal.

Here is the email reply I received:

"Last 3 months of last year were problematic for the Board “clearing” the decks.   This year, the CEO and the Board have been further streamlining company processes, studying and developing underfoot opportunities that were previously not effectively exploited and strategising to win back and also to grow, market share.

Previous management were attracted to the “easy yards” they anticipated in M & A.   What they actually discovered during their incumbency was that most small companies with any IT or “health” focus tended to have very inflated ideas of the “multiple” that might apply to their business. The owners also are often naive regarding how secure their IP is against disruption.   As you would know, the P/E multiples in similar sectors in the US have been reducing.   We expect Australia to move in that direction too.   It may be that the time for considering our looking again at acquisitions is close at hand.   It obviously can be helpful to have an agent on the look-out also, though that has not been our recent experience.   The Board is aware of how difficult it is for fledgling companies to secure funding.   Likely, a company in that situation would have more realistic M&A aspirations.   If the corporate and business fit with the Corum business is plausible – the Board will always give an appropriate prospect proper consideration.  For your understanding, our internal mantra is that we are in the business of providing business solutions (not simply of being a software developer). You and I should have a talk first to better identify how you could possibly help and exchange some more details and consider meeting.

I note that you are not in Sydney.   Could you suggest a phone number that would work, on say Tuesday or Thursday next week and maybe a couple of times when you are available and we can start a dialogue.


Bill Paterson
Chairman
Corum Group"

Here is my reply:

"Bill,

Thank you for your thoughts and insight into the approach that Corum is taking to refresh the current business.

Additionally, I appreciate you letting me know about some of the hurdles the company has encountered in the M&A space. I wish to also add that another trend I have noticed in small companies within the IT and health space is that they tend to be closely held by a majority shareholder and who may also be the founder of the company. This adds another layer to the already challenging approach when it comes to not overpaying for growth through acquisition.

Another option which may or may not have already been considered is that there is a great quality business out there which is currently being valued at $25MM, has above 20% operating margins, earnings of about 4 to 6 million during an average year, a clean balance sheet and a great management team. Would you believe that this great quality business is only selling for about 6 times earnings! If the Board exhausts all current possible opportunities in the M&A space and none appear to provide significant shareholder value, the best use of some current cash may be to buyback some shares of Corum to create additional shareholder value until an even better opportunity presents itself.

I am just a small shareholder with a huge passion for investing and learning about companies. I am not sure how much more help I can be, but I am happy to assist wherever I can with idea generation.

My mobile is *******, it would be great to have a discussion after 10am on Tuesday or anytime Thursday.

Thanks"

I'll also post a summary of the phone call I had with Bill, Gregor Aschoff was also listening in on speaker phone.