The BUY thesis for ACF, page-9

Thank you for a great piece. It sets out clearly why you are invested. I am invested but would consider myself a nervous investor in this sector. I have lived through the period when the cycle caused many cyclical businesses to underestimate how disjointed the downturns in activity can be and the depth of the margin loss during that period.

Looking at Unispan I would think that 2019 would have been a bit worse than 2018 especially given where they operate. There are a few things that I cannot in my mind see why it would not be a challenge to acquire Unispan - The most logical being its tie in with ULMA - My experience ( limited at best) suggests that Acrow doesn't need external technical systems as it seems to have its own. That suggests that ULMA would be uncomfortable with their product being exclusively represented in Australia by a competitor - Have I got that correct. So, in fact, they may well come here themselves but as they are from Spain and have a huge worldwide presence and haven't come here before its probably unlikely. They could however just find another local partner ( they have one in NZ as well). What risk would that pose?

Then on another level - why did Unispan see it necessary to put out that email. As you pointed out its not a bolt-on so in fact staff will be rationalised and as such I as a manager would not have put anything out until a signed and sealed agreement was in place. Given that the A$ has been suffering what is the impact cost of having a partner billing in Euros?

The acquisition - I would not like them taking on that much Debt ( $30 million) without rebalancing the balance sheet - no matter what point in the cycle. I would rather a quicker utilisation of tax losses and thus a much quicker pathway to franking credits. So my first prize, as an investor, would be an underwritten rights issue It doesn't have to be that much but say a 1 for 5 @22c. Its higher than the IPO but would raise around $7.5million and net around $7million. That would change the balance so that the debt (net) would go from $3m to $33million less $7million so down to $26 million. Shareholder funds would be $47.6 plus $7 =$54.6 or at least double the net debt.

The key for me would be the ULMA impact. All you need is another player in what looks like a crowded market that probably needs some compliance checking and regulation. The other unhappy consequence could be that these negotiations end up influencing ULMA to come here and acquire UniSpan themselves.

I am not surprised its taking so long to get all the ducks in a row - this seems to be a complex acquisition. I do see that its a nice added item in the basket if you get it and if more regulation comes a lot of players at the bottom fall out making it easier to you to establish a very powerful position in the market.

Thank you for sharing.