Interesting article in Livewire today by Ben Richards of Seneca Financial. I hadn't heard of them before. It's a new fund but they have beaten the Small Ords over the past year that it's been running. Anyway, it's a decent read on takeover plays in Aussie small caps and he makes a thought provoking argument below for why Catapult is an attractive option.

Catapult Group International Ltd (ASX: CAT)

Catapult Group International is a global leader in sports technology and analytics, specializing in wearable devices and video solutions that monitor and analyze athlete performance. Its wearable GPS trackers, famously visible on players across sports like AFL, soccer, and rugby, provide critical data on metrics such as load management and fatigue, while its video solutions offer tactical insights for coaches and teams. By converting traditional intuition-based coaching into a data-driven approach, Catapult has become a must-have tool for professional sports organizations worldwide.

Catapult is poised for significant growth, supported by strong tailwinds in the professional sports industry. The global sports tech market is projected to grow at 17.5% CAGR to $40 billion by 2026, driven by increasing media rights values, the rise of sports betting, and growing fan engagement through social media and streaming platforms. With only ~21% penetration of an addressable market of ~20,000 elite teams, Catapult has ample runway to expand its user base and cross-sell products. Emerging trends such as the professionalization of college sports, rising investment in women’s sports, and integrated video-wearable solutions further amplify its growth prospects, positioning Catapult as a key beneficiary in the fast-evolving sports landscape.

We mentioned CAT as a buy to our Good Research subscribers when the stock was trading at $1.96 just 3 months ago. With shares now trading +88% higher today, and +53% since we wrote this article on Livewire, the thesis is still largely unchanged.

Synergies:

We see Catapult as a global sports tech platform that can be scaled up significantly into a large addressable market. Data is the new oil, and Catapult holds the key to professional athlete performance data.

Acquiring Catapult unlocks synergies through product integration and cross-selling. Catapult’s wearable technology and analytics tools can be combined with an acquirer’s platforms to create comprehensive solutions, while its global client base provides opportunities to cross-sell and expand into sports media, ticketing, or fan engagement markets. Integrating Catapult’s player data into broader ecosystems can enhance customer experiences and generate new revenue streams.

The acquisition offers cost efficiencies through streamlined operations and supply chain optimization, while a larger acquirer could scale up Catapult’s R&D budget to accelerate growth through new product development. Catapult’s data can also drive advanced AI tools for injury prevention, performance forecasting, and tactical insights. With a strong presence in elite sports and opportunities in grassroots markets, the deal positions the acquirer as a leader in sports analytics, strengthening their competitive edge and growth potential.

Scarcity:

Opportunities to gain exposure to the rapidly growing professional sports industry are exceedingly rare, particularly in public markets and even more so in Australia. In the US, assets in this sector are scarce and often held by private equity or billionaires as trophy investments. Catapult stands out with a strong, hard-to-replicate market position, underpinned by proprietary technology in wearable athlete trackers and video solutions for coaches.

Over the past decade, Catapult has built and acquired a comprehensive suite of software and wearables, establishing a robust network of professional organizations that would be difficult to replicate from scratch. Now entering a cashflow harvesting phase, CAT presents an attractive opportunity for financial investors seeking exposure to the professional sports sector.

Gettable:

CAT has an open register, with the board holding approximately 17% ownership. This substantial stake reflects strong alignment with minority shareholders and suggests that any potential takeover would likely require board approval, ensuring shareholder interests are well-represented.

Cheap:

CAT is currently trading at 4.9x EV/Sales, with a robust ~20% annual top-line growth and impressive 75% incremental profit margins. The business also offers significant growth optionality, with new products like the NCAA sideline video tools yet to be reflected in sell-side analyst models. Additionally, the potential to secure a major deal with the NFL represents a substantial blue-sky opportunity.

Given the valuation benchmarks for software companies, we believe any acquisition would likely occur at a multiple of at least 6-8x EV/Sales. Factoring in a reasonable takeover premium, this could propel CAT’s valuation to over $5.00 per share.

Who might buy it?

Private equity firms, such as Silver Lake (City Football Group, New York Knicks), CVC (rugby leagues, Formula One), and TPG (tech/media interests), are likely contenders, drawn by CAT’s market-leading wearable technology, recurring revenue streams, and opportunities for operational efficiency and bolt-on acquisitions. With CAT under-geared and trading on just 5x EV/Sales, private equity buyers could leverage its strong market position to scale growth and enhance profitability.

Global technology giants like Apple, Google, or Microsoft might also see strategic value in Catapult’s player-tracking and analytics capabilities. Integrating this technology into their health, fitness, or AI ecosystems could enhance their platforms and deepen their reach into professional sports. Similarly, sportswear and equipment manufacturers like Nike, Adidas, or Under Armour could embed Catapult’s solutions into their wearable products, offering athletes and teams a complete performance ecosystem.

Additionally, media and entertainment companies such as ESPN, DAZN, or Fanatics could utilize Catapult’s analytics to enrich broadcasts and fan engagement platforms. Whether through data-driven insights for viewers or enhanced performance metrics for athletes, Catapult represents a scarce, high-value asset in the growing sports technology landscape, making it attractive to a wide range of strategic and financial buyers.

Why now / what's the catalyst?

CAT's profitability is inflecting, and it's entering an attractive cash flow harvesting phase, demonstrating strong operating leverage in its recent financial performance.

The key metric to call out from CATs recent 1H25 result was its exceptional incremental profit margins. The company achieved an impressive 75% incremental margin in the first half of FY25, well above its medium-term target of 30%. This reflects strong profitability from newly signed teams and product sales. Notably, this performance builds on incremental margins of 43% in FY24, a significant improvement from 19% in the first half of that year, underscoring CAT's growing operational efficiency and ability to capitalize on revenue growth.

A key catalyst for CAT is its looming inclusion in the ASX200 index. With its market cap now at $1.0 billion, CAT is nearing the ~$1.2 billion threshold for inclusion in this premier index, tracked by passive ETFs and institutional mandates. Such an event could drive significant upside, as seen with other high-performing ASX-listed technology shares like Pro Medicus (ASX: PME) and Wisetech (ASX: WTC), which have re-rated to P/E multiples of 204x and 97x, respectively. These stocks benefited from strong capital flows and their scarcity as tightly held, high-quality tech shares on the ASX, particularly following the exit of Altium after its takeover (~50x EV/EBITDA).

This is the link to the full article if you're interested - https://www.livewiremarkets.com/wires/the-4-common-traits-of-small-cap-takeovers-and-our-top-8-targets-for-2025?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Wednesday%204%20December%202024&utm_content=Trending%20on%20Livewire%20-%20Wednesday%204%20December%202024+CID_d3a295bfd0e137ce6b1c2dcb34f0da8f&utm_source=campaign%20monitor&utm_term=ACCESS%20THE%20INSIGHTS