Coretex Acquisition – Thoughts from the Webinar held today (3pm NZ time, 26-Jul-21).

EROAD Chair and CEO both very extremely positive on this acquisition. It might seem silly to expect anything else, particularly as they are still raising money to fund it.  However, they have been looking at Coretex for several years and see this as a very complementary and highly strategic merger.

They seemed at pains to avoid buzz words like “transformational” but were unable to describe it as being anything else as it accelerates their growth by about 2 years.

They estimate this will turn 2 top 25 players (EROAD & Coretex) in the US market into top 10 combined operator. Being top 10 is not a huge draw in any market but the US haulage telematics industry is huge and has 20% CAGR as it digitises. Separately, this market is subject to further positive tailwinds from improving technology (EV’s) driving different road toll methodologies.

Consideration in cash & shares assuming full contingent consideration payable is ~ AU$177 which is 34% of the current Market Cap ~ AU$521 (@ share price $6.30) and lifts all key metrics (Revenue, EBITDA, AMRR & Units installed) by 48-52%.

EROAD will also go from net cash to net debt to fund the cash component of this transaction but the debt servicing sounds well covered by EBITDA.

While there is some overlap in what each company does, Coretex 1) brings deeper penetration into EROAD’s key target market of the US and 2) adds entry into three specialised transit verticals - refrigeration, concrete and waste.

Bottom line – any “transformational” acquisition should be viewed with scepticism and there is no shortage of execution risk here. For me it largely comes down to faith in management’s strategy and ability to execute and I have a lot of that so I have drank the kool-aid an it tastes good to me.

Disc: Held