Get lost and move on, page-9

Now that we have past the 1st of the 2-year earn-out for Warcom, being Shoply's 1st acquisition by way of cash + script, let's hope that the company hasn't overpaid for this business.

Earn-outs doughed out to Paul Warren/associates to date, besides the $150k cash upfront:
- 17/10/14: 2,851,052 shares @ 1.76c
- 9/2/15: 4,620,852 shares @ 1.51c
- 13/5/15: 2,336,058 shares @ 1.59c
- 18/8/15: 5,178,886 shares @ 1.49c
Total = 14,986,848 shares @ 1.56c

Applying EBITDA/revenue of 8% from a much larger and more sophisticated business like Officeworks as a best-case scenario and industry average of paying 3x earnings, you get a theoretical price tag of $480k for the Warcom business.

Not being an insider I can't tell how many more shares are yet to be handed out in the next 12 months, but as of right now the ex-owner(s) of Warcom have already received $384,262 worth of cash and prizes, vs say $480k indicative price tag.

If one takes a less-optimistic scenario and applies 5% EBITDA, you get a measly $300k price tag, vs $384k already paid out and still more to go.

Earn-out share issue, if priced and T&Ced in ex-owners' favour, in reality is no different to a dilutive CR at the end of the day. Especially worse if ex-owners are savvy enough to have factored in a safety margin during negotiation to counter potential share price fall post acquisition. So no surprise if Paul Warren & Co have been/are selling at 1.2/1.3c below their earn-out average.

Only a few more weeks before board/management has to come clean with a top 20 list in the final annual report. No guaranteed visibility if ex-owners are smart enough to chunk their earn-outs into multiple entities to fly under the radar.

I can't see any light of day when Shoply has another 2 years' worth of earn-outs for Warcom and eStore, adding sustained selling pressure to the stock.


BTW my back-of-napkin calculation as an outsider would suggest a much larger number than $30m to become cashflow positive if anyone's interested.