Used to drive past their old office and laugh at how emblematic it was of UK smallcaps (the building was a shed but probably worth more than their Mcap at the time!)
Great write up, I've had a look over their 2024 annual report and it's a really interesting company. Should also be fairly recession-resistant by virtue of the kind of work they do.
Thanks for clarifying. I need to go into their figures deeper than. But still - why Mgmt can not just take a figure that presents all relevant costs?
For Aquaflow HR Services: 2.38 M pound are earn out based on future performance. Though they might just occur when the performance is right - excluding them doesn't feel right. So in the end they paid 4.1x to 6x EBITDA - deepending on EBITDA 26 results.
Well, they designed the earnout so they pay I think 4.3x 2026 EBITDA, whatever it is. So for every extra £ of EBITDA the business generates in 2026, they pay £4.30 in earnouts.
Because it's a tiny business, capex can swing a lot year to year, so they present EBITDA to give a better idea of underlying performance (and because presenting it net of capex risks discouraging investment). I should clarify it's not like I had to go digging to find the capex numbers - they talk about those on earnings calls and in press releases, and use what they call FCF (EBITDA - capex) as an alternative performance measure.
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Great write up. I had a Quick Look. Did you find how much revenue they do in each segment? Some bearish thoughts: Why the hell they only talk about EBITDA? Paying 6x EBITDA for a cleaning business - Aquaflow (incl. earn out 2026).Doesn’t seem cheap to me. Who knows if the managers/ owners comp is already included in EBITDA? Especially considering the dilution over the last years I am really wondering if they don’t behave like a mining businesses
The latest figures I have by business are from 2023 because they've come from Companies House. Also, the fiscal years don't line up perfectly, but approximately: Revenue: ReactSC £5.8m, Fidelis £10.2m, LaddersFree £3.6m.
I think I mentioned in the post - EBITDA is a relevant measure here because these businesses are very capital light. ReactSC, Fidelis and LaddersFree have about £150k capex between them. Aquaflow will have another £150k, being a slightly more capital intensive business. But with £3.6m of EBITDA, £300k is not much at all.
The multiple for Aquaflow was only about 4x EBITDA. The 6x was the FCF multiple, post-tax and everything. That's definitely cheap. I don't think there's good reason to say the managers are just empire-buiding for the sake of it.
Good write up Matt
excellent writeup
Thanks!
Used to drive past their old office and laugh at how emblematic it was of UK smallcaps (the building was a shed but probably worth more than their Mcap at the time!)
Great post, good luck with the exams.
Cheers Guy
Great write up, I've had a look over their 2024 annual report and it's a really interesting company. Should also be fairly recession-resistant by virtue of the kind of work they do.
Thanks for clarifying. I need to go into their figures deeper than. But still - why Mgmt can not just take a figure that presents all relevant costs?
For Aquaflow HR Services: 2.38 M pound are earn out based on future performance. Though they might just occur when the performance is right - excluding them doesn't feel right. So in the end they paid 4.1x to 6x EBITDA - deepending on EBITDA 26 results.
Well, they designed the earnout so they pay I think 4.3x 2026 EBITDA, whatever it is. So for every extra £ of EBITDA the business generates in 2026, they pay £4.30 in earnouts.
Because it's a tiny business, capex can swing a lot year to year, so they present EBITDA to give a better idea of underlying performance (and because presenting it net of capex risks discouraging investment). I should clarify it's not like I had to go digging to find the capex numbers - they talk about those on earnings calls and in press releases, and use what they call FCF (EBITDA - capex) as an alternative performance measure.
Great write-up !
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A refreshing poetic take on our business world and capitalism.
A reflection on why today’s capital architectures—PE, VC, Hedge funds, SPAC, Alt funds, Rollups—mostly fail to build and nuture what time can trust.
Built to Be Left.
A quiet anatomy of extraction, abandonment, and the collapse of stewardship.
"Principal-Agent Risk is not a flaw in the system.
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Great write up. I had a Quick Look. Did you find how much revenue they do in each segment? Some bearish thoughts: Why the hell they only talk about EBITDA? Paying 6x EBITDA for a cleaning business - Aquaflow (incl. earn out 2026).Doesn’t seem cheap to me. Who knows if the managers/ owners comp is already included in EBITDA? Especially considering the dilution over the last years I am really wondering if they don’t behave like a mining businesses
The latest figures I have by business are from 2023 because they've come from Companies House. Also, the fiscal years don't line up perfectly, but approximately: Revenue: ReactSC £5.8m, Fidelis £10.2m, LaddersFree £3.6m.
I think I mentioned in the post - EBITDA is a relevant measure here because these businesses are very capital light. ReactSC, Fidelis and LaddersFree have about £150k capex between them. Aquaflow will have another £150k, being a slightly more capital intensive business. But with £3.6m of EBITDA, £300k is not much at all.
The multiple for Aquaflow was only about 4x EBITDA. The 6x was the FCF multiple, post-tax and everything. That's definitely cheap. I don't think there's good reason to say the managers are just empire-buiding for the sake of it.