Email written by Michael Gollagher on 27th May 2021
National Account Manager

As a current or prospective investor in the Montgomery Small Companies Fund I wanted to share with you another exciting outcome for investors that occurred in our fund today. As you would be aware we have spoken in the past about having the ability to participate in the process to take a company from private ownership to being publicly listed, or gaining access to highly sought after IPO’s and capital raisings as they come to market. Today we participated in the capital raising for Swoop Holdings Limited (ASX:SWP), this is effectively a re-listing where the company also raised an additional $20m in capital.

Swoop Holdings is using a tried and proven business model in Telecommunications which around the industry is called a Roll up strategy. They currently have a pipeline of small private telecommunications companies that have an existing client base and or infrastructure. They purchase these business at 3-5 times EBITDA, they then roll them into Swoop which is trading at 15-20 times EBITDA creating a value accretive acquisition event with each business they purchase.

What we like about Swoop:

We are entering early with a market cap of approximately $200m
They now have a war chest of $20m for future acquisitions
The business already has earnings of $8m EBITDA
This is a well-tested business model, having been seen previously in Vocus Group and Unity Wireless
Swoop already have a Fixed Wireless Network of approximately 250 towers. Hence there is also significant room for growth
Fixed Wireless infrastructure is better than NBN in most regional areas hence the opportunity or addressable market for Swoop is significant.
The management team is well known to Gary and Dominic going as far back as Gary’s time at Renaissance AM where he helped fund and benefited from the expansion and growth of Vocus

Further to the points above the management team and board have all held rolls across Vocus Group, Amcom (acquired by Vocus), Superloop and Pipe Networks. This entrepreneurial board and management team all have extensive experience in the Telecommunications industry and know the industry and market well. Further to that Gary and Dominic have both had a professional relationship with James Spenceley the Swoop Chairman during their time working together at MOHR Asset Management.

Aside from the roll up aspect of the business model, they also have the margin expansion that occurs when they transition a client from NBN infrastructure to their own infrastructure. In this case the margin can move from 20% to as high as 80-90%.

This is a sector that is well known to the team and one where we believe we have significant insight and competitive advantage.

Most excitingly was our ability to gain access to capital in a well over subscribed raising that has managed to return our unit holders a 150% return on its day of relisting. The share price moved from an opening price of $0.50 to close at $1.25.

As I have mentioned in the past, one of the competitive advantages of our fund is its ability to allocate to private and pre-IPO opportunities (limited to 10% of the fund), this is an example of us utilising this scope of our mandate to generate alpha for our investors.