Not holding, however 5, 1, 2, 3, 4, in that order, with strong emphasis on 5 & 1, where the M&A makes strategic and commercial sense only, coz I think Laserbond has good tech already, and they don't need to buy more, however if an acquisition gives them access to a new sector/market, and/or a pile of clients, and it's a good price, then that could work.

I'm still a little wary about the fued between the founding brothers and how that might play out, so I'm holding off on getting onboard LBL at this point. They still have a long runway of growth, if they don't agree to be taken over by a larger company first.

@hainc capital allocation is always an interesting discussion, because I think we can all agree that it is the most important job a management team has yet we can't assess how well they have done until many years down the track. For LBL in particular I would rank your five options as 5,1,3,4,2 (debt would be higher but for LBL the debt on the balance sheet is their lease obligations).

However we know LBL has handbrakes on their organic re-investment, primarily access to skilled labour. There is no point bringing on new customers or expanding your factories if you can't find the employees to perform the work. Because of that, I think M&A takes on a heightened importance because it would be unlikely to see LBL organically expand into a new geography given the time required to scale up their employee base. We have seen this as they have acquired in Vic, Qld, WA and soon to be US rather than choosing to grow organically. SA was an organic expansion many years ago, but that had the beneficiary of being close to a key customer who underpinned the new factory.

So far I think LBL's M&A track record has been good, though Gateway will be the first real test given the size and the minority interest. Having spoken to management they raved about the Gateway business and team and strongly believe in the synergies they can drive for both businesses.

Looking past LBL and talking capital allocation in general although it can be hard to assess how today's capital allocation will be viewed in the future, I am always pleased to speak to management teams who at least approach it thoughtfully. I remember talking to Vance at XRF many years ago when they were expanding into Europe through their German office and it was an insightful conversation on how they were measuring/forecasting the operating losses of the segment and assessing that against the projected steady state operating profits. From memory the office had cumulative operating losses of $3-4m, and in FY22 reported a profit before tax of $450k. Unfortunately we didn't get the profit explicitly broken out in FY23, though revenue grew from $5.5m to $7.3m so it likely did a profit before tax of $1-2m and would now be generating a very tidy return on upfront invested capital.

However not all management teams are as thoughtful if you push them on the returns on capital of loss making segments or ventures. They can usually tell you what they expect a business to earn as it scales, but very few assess that against the dollars being invested to achieve that, and even worse you see a lot of sunk cost fallacies where management teams will continue to proceed with uneconomical projects because they have already invested significant money into it.

Agree 5-1-3-4-2 and a more transparent management might also put specific metrics against each of them.

On acquisitions, for example, the KPI's might include EV/EBIT of less than 7x, ROE >12%, 50/50 on cash/shares, bonus or claw back on over or under performance over 3 years & definite synergies + cross selling.

Personally, I think LBL suffers from that which we like about Wayne H - no BS, straight shooter yadda, yadda. What would happen if we had a PT Barnum character who could spruik the hell out of the virtues of the LBL product and intellectual property.

By way of analogy, my feeling on LBL is that we have the best rapid fire machine gun in the world, but no one knows about it, because it is sitting at the back of the shed, next to the dunny and the workers lunch room. It should be on display in Ukraine and at every military armmanents exhibition in the world with a super salesman schmoozing the generals & the politicians. Plus, all of Australia would know about the genius of the product because Karl and all the talking heads are falling over themselves to speak to said 'super salesman'.

It can be done - black pearls were once considered worthless until New York jeweller Harry Winston changed the perception of the marketplace by getting select 'social queens' to wear them. Then, everybody wanted them, and still do today. Perception trumps reality every time.