Brattle Street Investment Corp. 3

November 2 2020 – CA: BRTL – $0.12 CAD

Prologue
There’s more news about my pet net-net (Brattle Street Investment Corp.).

There’s been a modification to their previously announced deal.

I wrote before that Dalsin and Greene were in the early stages of a deal. As time has turned, the deal has changed.

Valuation and Price
The pre-trading halt valuation was $0.18 per share (NCAV) and the last closing price was $0.12 per share.

From last month:

What’s the deal? First, The TSX Venture Exchange has to approve the transactions that make up the deal. They are all pending. Big picture as of now: BRTL transforms into Salona Global, a healthcare roll-up. The first stage of this roll-up is acquiring SDP, hiring new management and doing a private placement. Here’s all the math from their recent filings: 1) a 7.37 shares for 10 rollback. 2) Issue 19mm shares to acquire SDP and get a pre-money valuation of $45.9mm. Now at 54mm shares out, that’s $0.85 per share. 3) Private placement for $8.5mm at $0.85 per unit (unit = 1 share and 1/4 warrants).

It will be interesting to see where the stock trades after The TSXV makes their decision. If they OK the transactions and the stock trades at $0.85, we’ve made about 5 times our money (math: $0.85 per share / ($0.12 * rollback (10/7.37))). Not bad for a net-net.

I didn’t write that the deal itself could change, which is what has recently occurred.

I think the “Consolidation” and “The First Transaction” are remaining the same, but the “Concurrent Financing” is changing. Instead of receiving $8.5mm in exchange for 10mm shares and 2.5mm warrants (1 share $1.25 strike for 24 months)… the New Concurrent Financing is in two blocks.

Block 1: I think this is a USD transaction because there’s an S-1 clause. Brattle would receive $3.12mm cash (less $155,000) for 6.633mm (plus 829k) shares. The “less” and “plus” are incentives for the investment bankers. Looks like they would be raising about $3mm at $0.40, after commissions. This block of shares have a four month initial hold and then some monthly restrictions on further sales.

Block 2: Brattle receives $1.89mm (less $95k) for 2.21mm (plus 276k) shares and 2.21mm warrants (1 share $1.25 strike for 24 months) at 0.85 per unit (same price as before).

Putting it all together… that’s about $5mm CAD raised in a USD and CAD block and 12.15mm shares issued. The previous deal was $8.5mm CAD and 12.25mm shares issued.

If my math is right, I don’t agree with Les that “the Board has re-evaluated and improved the structure of the planned financing” because they’ve raised less cash and will be issuing about the same amount of shares. The four-month hold and trading restrictions may help a bit. Time will tell.

10-year chart.

Margin of Safety
Evaluate risk first. The deal could fall through, or get changed again, or BRTL goes back to the net-nets wasteland. If the deal goes through, it’s likely the stock will become more liquid and have a higher valuation – two things that make me a bit leery. My thinking will have to change and I’m sure my valuation approach will too as it will become a healthcare roll-up with lots of shares issuance and further private placements for acquisitions.

Et Cetera
It’s likely that Mr. Dalsin and Greene are trying to sell the deal to institutional investors that made money on their last roll-up called Patient Home Monitoring. More on that later, Salona Global is a good resource for now.

Why did they have to change the terms of the previous deal?

In the specific deal documents to acquire SDP, why are does it note they’re offering shares of stock for $8.5mm at $0.55 per share?

Why is Les Cross doing this for a “measly” 4.6 points. Does he own through a holding company, is he going to get lots of options, did he own part of SDP before the transaction?

I own shares of BRTL.

Acknowledgements
All mistakes are mine.

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