Not sure on MEA’s acquisition announcement today. My assessment:

Pluses

• entrenches what looks like a long standing Multisite franchise into the group
• known asset to the group so risk “should be lower”
• Projected to be EPS accretive first year (we’ll see)
• Earnout provides good incentive to hit marks
• share issues will be escrowed for two years
• the earnout is attached to the sales business only - that seems smart as rental managment is not a high benchmark and MEA are protected if the property market tanks

Minuses

• the beauty of the franchise model is that it is capital light - investing in one of your franchisees works against that
• the big one - why, oh why did you issue stock??? MEA is so undervalued seems such a waste to issue stock - particularly strange when we have a buyback going on at the same time!

Rich

disc - hold MEA IRL and on SM

I think MEA is an interesting value situation - after you consider cash in the bank and ignoring other investments - it’s a low single digit PE. Exposed to the property market, yes but if you look through short to medium term market problems it looks good value - add potential upside in the investments and the smart buy back and you have a stock with limited (but not no) downside and good upside potential. I think John McGrath coming back into the role will be interesting - learnt some lessons from his previous stint no doubt.

Own this IRL and on SM.