This blog post first appeared on the OS3 Digital website on 27th November, 2018. OS3 Digital is one of the core investments Quob Park has invested in with over 75% being under the control of either Quob Park or its founder. You can read the original blog article at http://www.os3digital.com/os3-digital/os3-digital-completes-deal-for-bikers-care-approved-joint-venture/
During November 2018, the OS3 board completed its first investment using shares at £25 for 50% of a Joint Venture in the UK under OS3’s Care Approved brand. The Joint Venture is branded Bikers Care Approved (“BiCA”) and will be used to target a motorbike related segment of the UK claims market. This segment of the market is expected to remain extremely profitable and unaffected by current planned regulatory changes.
BiCA is operating with a subsidiary already established as a regulated claims management company and now utilises technology from OS3 and third-party solutions to provide a cloud based platform to digitally link various elements of the claims supply chain, improving both the efficiency and effectiveness of the claims process. The target revenues and profits for BiCA are as follows:
- In the short term (1-2 years), targeted revenue for this JV is to reach a run rate of circa £12m a year, with a 40% EBITDA margin of circa £5m within BiCA;
- Medium term (2-3 years), targeted revenues imply a run rate of £18m, with a 45% EBITDA margin of circa £8m within BiCA;
- Longer term (3 years plus), targeted revenues imply a run rate of £24m, with a 45% EBITDA margin of circa £11m within BiCA.
In line with the OS3 board’s methodology for acquisitions, 20% of the short term profits have been warranted, with a pro rata portion of shares due to be clawed back from our BiCA partner should these warranted profit targets not be met. At the warranted profits level, and if OS3 utilises what was described in the OS3 board’s previous ventures as “The Waterfall Effect” (deriving revenues from owning key elements of the supply chain for a particular process), further revenues of circa £11m should be generated outside of the JV, with profits of circa £4.5m. If BiCA’s targeted short term revenues are met, and OS3 exploits “The Waterfall Effect” to fully integrate the supply chain, it will need to utilise funding of between £6m – £12m for working capital, potentially available to it via loan notes from its founders, or via alternative routes. Should OS3 invest to deliver upon “The Waterfall Effect”, the targeted revenues and profits are as follows, provided:
- short term targets are met, total combined revenues in and outside of BiCA for OS3 would be circa £70m, with EBITDA of over £30m;
- medium term targets are met, total combined revenues for OS3 in and outside of BiCA would be circa £110m, with EBITDA of over £50m;
- longer term targets are met, total combined revenues for OS3 in and outside of BiCA would be circa £140m, with EBITDA of circa £70m.
Provided OS3 has invested to deliver upon “The Waterfall Effect”, and BiCA meets the higher end of its medium term targets, and as long as it is using conservative accounting policies with significant visibility of future revenue, this investment alone would totally underwrite the £100+ (circa $130+) price per share targeted for 2022, on any reasonable P/E for a company of this nature. This transaction demonstrates once again the scale of the growth opportunity available to both OS3 and its investors.