Investor Letter

30 June 2024

Dear Investors,

We are excited to share our first investor letter with you! We have observed a significant market opportunity uniquely suited to our team’s experience. In this letter, we outline our core investment principles, which we will use to assess all opportunities.

Attalis Capital relaunched in March 2023 with renewed energy and deepened relationships with Australian family offices through my continued association with LFG, working with Steven Lowy to manage LFG’s Australian real estate and US growth tech investments. Over the past year, we have gained significant momentum at Attalis Capital, actively sourcing and evaluating growth private equity opportunities. We have adopted a methodical approach to sourcing proprietary opportunities, pursuing in-house developed investment hypotheses independent of market trends. This involves deep industry investigation, leveraging our extended network to unlock unique points of view, and ultimately presenting thoroughly evaluated long-term value creation opportunities for investors.

Deep Opportunity Set in Australian Mid-Market Private Equity

At Attalis Capital, we see a fantastic investment opportunity to create value through:

  1. Identifying Tailwind Industries: We focus on sectors with strong growth potential driven by favorable long-term trends. Industries like industrial monitoring and decarbonisation are prime examples where technological advancements and regulatory support provide significant growth opportunities.

  2. Partnering with Baby Boomer Business Owners: Baby boomer-owned businesses represent an estimated $3.5 trillion of combined value, and 81% have not completed succession plans. We offer a solution by providing a seamless transition, ensuring their business legacy continues while they benefit from their years of hard work. The addition of Operating Partners to the Attalis team helps us build deeper connections with these owners.

  3. Leveraging Our Network: Our extensive network allows us to find highly capable management teams and value-add investors. These relationships help address key due diligence issues and unlock new customer opportunities, ensuring the businesses we invest in can achieve their full potential.

  4. Thoughtful Investment Structures: We offer investment opportunities to high net worth individuals, family offices, and super funds with well-articulated investment theses focused on downside risk, value creation strategies, and strong management teams. Our deal structures are designed to be asymmetrical, with low downside risk and significant upside potential from revenue and EBITDA growth, as well as multiple expansion where applicable.

Investment Team Update

I am pleased to announce that Alex Gale and Danny Berkovic have joined Attalis Capital.

Alex Gale: Alex brings a wealth of experience, having built and exited two businesses from the ground up (DIVVY Parking and BoozeBud). He previously served as an executive at Pacific Equity Partners and Macquarie Capital’s Telecommunications, Media, Entertainment, and Technology team.

Danny Berkovic: Danny brings extensive experience in the tech, security, and monitoring sectors, having previously served as Country President for Securitas Australia. With a strong track record in founding, growing, and exiting (Fredon Security) businesses, Danny will focus on our industrial monitoring hypothesis and provide an operational perspective on new opportunities.

Moreover, we have strengthened our team with the addition of Daniel, Omar, Ian, Kerwin & Sam as Intern Analysts. Their analytical skills and fresh perspectives are already proving invaluable as we continue to grow and evolve.

Investment Principles

Attalis Capital believes that a set of investment principles is essential to ensuring great investment outcomes. Our investment philosophy is based on disciplined and thoughtful decision-making. Our core principles include:

  1. Simple & Understandable Business Model: We seek businesses with simple and understandable models, avoiding intrinsic risks that are hard to quantify.

  2. Formidable Barriers to Entry: We invest in companies with sustainable competitive advantages or “wide moats” and low risks of disruption.

  3. Simple, Predictable Free Cash Flow Generation: We prefer companies with a track record of generating free cash flow and predictable future growth.

  4. Catalyst for Value Creation: We invest in opportunities where there is a meaningful catalyst for value creation aligned with management’s strategy.

  5. Growth Tailwind: We target companies benefiting from structural growth tailwinds and have opportunities for continued innovation in the business model and/or product offering.

  6. Attractive Valuation & Asymmetric Return Profile: We seek companies with attractive valuations and significant return asymmetry, minimizing downside risk.

  7. Exceptional Management and Governance: We invest in companies with trustworthy, talented, and aligned management teams.

  8. Limited Exposure to Extrinsic Factors: We avoid companies heavily affected by macroeconomic factors and regulatory risks.

  9. Strong Balance Sheet & Governance: We use leverage conservatively and seek appropriate governance protections.

  10. Compounding Effect of High RoCE: We prefer companies with high return on capital employed and broader access to capital markets.

Current Investment Opportunities

Year-to-date, we have evaluated more than 100 potential investments. Our process includes in-house outreach to targeted sectors, followed by calls with management and face-to-face meetings to thoroughly evaluate each opportunity. This rigorous sourcing strategy ensures that we identify and invest in businesses with the highest potential for long-term success.

We are currently pursuing several promising investment opportunities across various industry sub-sectors. Although the specific business names will remain confidential, we are happy to discuss further details with interested parties.

Industrial Infrastructure and Consumables Company

  • Simple & Understandable Business Model: This company provides essential, easy-to-understand consumables that are crucial for mining and other industrial operations, ensuring a straightforward business model.

  • Simple, Predictable, and Free Cash Flow Generation: The consistent demand from mining operations ensures predictable and stable cash flows, making it a reliable investment.

Industrial Monitoring Company

  • Formidable Barriers to Entry: This company benefits from high customer stickiness due to its integrated hardware and software solutions, making it difficult for competitors to churn away from them.

  • Catalyst for Value Creation: The company has significant value creation potential through its AI technology integration, which enhances operational efficiency and productivity.

Marine Ports & Services Company

  • Formidable Barriers to Entry: This company holds a monopoly position in key Australian ports, creating significant barriers to entry for competitors.

  • Simple, Predictable, and Free Cash Flow Generation: The company's monopoly services ensure stable and predictable cash flows, providing a strong foundation for long-term investment.

Health Care Services Company

  • Simple & Understandable Business Model: This company's recognizable brand and clear expansion opportunities make the business model straightforward and easy to understand.

  • Catalyst for Value Creation: The potential for new product categories and brand rejuvenation presents substantial upside, aligning with our principle of identifying value creation catalysts.

Specialist Disability Accommodation OpCo/PropCo Investment

  • Growth Tailwind: We are collaborating with Peter Miller, ex-COO of Westfield, to work with Australian super funds and endowments to invest in the operating business of a market-leading SDA operating business (OpCo) and fund the development pipeline (PropCo) for Specialised Disability Accommodation. This sector is supported by strong regulatory and social trends, providing a substantial growth tailwind.

  • Catalyst for Value Creation: The opportunity to fund the development pipeline and expand the operational capabilities of the OpCo presents substantial value creation potential, particularly in the underserved market of Specialised Disability Accommodation.

If you are interested in learning more about these opportunities, please contact me directly.

Conclusion

As we move forward, we remain committed to our principles and strategic focus areas. We are excited about the opportunities ahead and look forward to sharing the merits of each new investment opportunity with you.

As always, our relationships and network are Attalis Capital's most important assets. 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.

John Shin.