Investor Letter
December 2024
Dear Investors,
We are excited to share our latest investor update, highlighting Attalis Capital’s approach and strategic progress over the past six months. Our approach is grounded in discipline and guided by our principles, which prioritise capital preservation and thoughtful long-term value creation.
Live Investment Opportunities
We are pleased to announce that Attalis Capital is in exclusivity for two investment opportunities. Both businesses reflect the core attributes we look for: a backable management team, offering strong downside protection and clear pathways to sustainable value creation.
Advanced Monitoring Solutions Business
This business integrates solar-powered devices with monitoring to meet critical surveillance needs across construction, engineering, and government sectors.
Background: We undertook an extensive industrial monitoring industry search before coming across this opportunity. We were pleased to find so many businesses operating in this emerging sector; however, many were either subscale (for example, VC-backed IoT companies), built around one-off sales, or narrowly focused on a single application or technology solution.
Investment Thesis: Being a market-leading platform in a sector experiencing strong tailwind growth, displacing traditional security guarding and manual sensor monitoring. The business is uniquely positioned to utilise AI productivity advancements by controlling hardware and data collection utilising cameras and sensors. These capabilities allow it to leverage non-replicable data, network effects, and strong customer retention. We have also verified significant untapped potential in selling to its existing customer base due to prior capital constraints, as well as opportunities for selling into different customer verticals and upselling value-add solutions to enhance its growth trajectory.
Key Attributes:
Management: A proven management team that has innovated under challenging group ownership conditions.
High Growth Potential: Fleet expansion, product bundling, and longer-duration contracts provide clear pathways for growth.
Alignment with Principles: Growth tailwinds, exceptional management, and a strong risk-reward profile align closely with our investment strategy.
Attalis Equity Investment: Syndicating $40-50m as the controlling majority shareholder alongside management.
Return Profile: Attractive return asymmetry with downside protection underpinned by a fleet with a strong return on capital, base case returns typical for a private equity investment, and the potential for significant upside as the business model evolves.
Timeline: Investor review in January/February 2025, close by March 2025.
Bulk Material Conveyor Belt Consumables Business
This business provides mission-critical consumables for mining and industrial operations. Its products and services enhance operational efficiency and reduce downtime, making it essential for its clients.
Investment Thesis: The business benefits from a very high degree of recurring revenue due to the consumable nature of its products, operating on a classic razor/razor blade model. Its strong long-term repeat order behaviour and positive net revenue cohort trends underpin predictable and stable cash flows. Its engineering-led solutions and strong customer relationships provide a solid foundation for growth through bolt-on acquisitions and geographic expansion.
Key Attributes:
Management: A highly experienced CEO with deep industry expertise and a strong alignment with investors.
Strong Financial Profile: High free cash flow generation and a compelling entry multiple offer downside protection and potential for multiple expansion.
Alignment with Principles: The business exemplifies our focus on barriers to entry, predictable cash flow, and clear value creation opportunities.
Attalis Equity Investment: Syndicating $10m as the majority shareholder alongside management.
Return Profile: A strong underlying cash yield supported by demonstrated repeat purchasing behaviour by customers will deliver a dividend yield of 9-11% with upside potential from further R&D, geographic expansion, and potential synergistic bolt-on acquisitions already being explored.
Timeline: Close by Feb 2025
Wellness Opportunity Reflection
In mid-2024, we evaluated an opportunity in the healthcare and wellness sector that showcased transformative potential. The business, anchored by a trusted brand and extensive clinic network, offered potential for growth through new product launches and digital transformation.
Despite its potential, our due diligence reinforced a need for discipline given challenging retail consumer conditions and a healthy margin of safety for valuing any new initiatives. While another bidder ultimately offered a higher price, the process reinforced our commitment to valuation discipline and highlighted the potential for future re-engagement.
Deal Exploration
We continue to investigate opportunities in sectors that align with our investment principles. We are currently focused on industry deep dives within productivity advancements in industrial businesses (3D printing, CNC machining, and automation), opportunities in grid upgrades driven by increased battery adoption and the shift to two-way electricity transmission infrastructure, healthcare (opportunities to push more in-home care using technology such as telemedicine and in-home testing), and real estate opco/propco platforms. We believe these sectors present meaningful opportunities for private capital deployment. We would love to hear from you regarding introductions to businesses of interest or executives with experience in these areas to further our exploration.
Conclusion
If you are interested in learning more about either of our current investment opportunities, please contact us. We invite you to contact us for a confidential discussion and a detailed walkthrough of our investment theses.
As we move forward, we remain committed to our principles and strategic focus areas. These recent opportunities highlight the power of our approach and the strength of our relationships. We remain focused on disciplined investments that prioritise downside protection while offering pathways to sustainable value creation.
As always, our relationships and network are Attalis Capital's most important assets. Aside from the areas specifically outlined above, if you know any executives we should meet to explore industry verticals or business owners who might be interested in understanding how we can work together to provide them with an exit/succession plan, we would welcome the introduction.
Should you have any questions or wish to discuss our strategy in more detail, please do not hesitate to reach out.
Warm regards,
John Shin
+61404877470
