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Monday, 05/13/2019 7:51:40 AM

Monday, May 13, 2019 7:51:40 AM

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Ackroo Inc. is a gift card, loyalty and marketing platform for SMBs sold through a SaaS model. They sell to store chains with 10 to 150 locations. Their competitive advantages lie in the dozens of tech/product integrations that makes the software agnostic to payment/Point-of-Sale/hardware. This is particularly important with franchisors that allow their franchisees to use their own providers. If a chain wants a loyalty program that works in all their network, Ackroo is a low-cost and low-friction solution (vs. having to force your franchisees to switch their other providers to a centralized solution). As they add new services and grow, I believe the moat will widen - SMB clients want a one-stop self-serve complete solution for all their marketing needs.

Revenue model is typically 70-100$ per month per location plus one-time revenue of 1,000$ per year for products (plastic cards and other marketing materials). They use a sales channel strategy as direct sales isn’t a viable model. This limits the organic growth potential but explains why there is an M&A strategy in place.

The gift card/loyalty/marketing industry is a very fragmented one with many small competitors that have started in business 10-15 years ago. The typical target has an outdated software that would need significant investments to stay competitive and isn't growing anymore. Current pipeline has over 10 compagnies with over $10M$ in revenue combined... And the pipeline keeps growing. Target multiples are 1-3x revenue with 40-60% flowing to the EBITDA line.

As their customer base grows, they will add other complimentary software solutions through acquisitions. In my last discussion with management, Steve Levely (CEO) mentioned payment as a big opportunity going forward - they will start to upsell payments in each of their 4 verticals in Q3 2019. They have tailored solutions for each vertical: retail, hospitality, petroleum and automotive. Payment could triple the potential revenue per location.

Finally, they are starting to have some size in the US market but it's not a focus for now. They would want a good partnership like the one they did with First Data Canada for the Clover platform. Note that Ackroo was the only third-party invited to present at Clover launch conference in Canada.

The company was cash flow positive for the first time last year with 4.4M$ in revenue and very strong metrics: 70% recurring revenue, 85% gross margins and a 96% retention rate. They recently got a 500k$ loan and working capital is now positive.

- 7th acquisition in 4 years
- Will be financed 100% by debt on good terms
- Paid EBITDA multiple of 2.8-4.0x for a SaaS business. Dirt cheap.
- In a nutshell: Ackroo Inc. is a mini-CSU in the making in the marketing/payment industry that currently trades at less than 2x revenue and 8-9x EBITDA on proforma numbers.

Disclosure: The Rivemont Microcap Fund, for whom I am a consultant, bought more on Friday and now owns over 4.88M shares.