What you need to know: • Since our last note in September, there have been 11 new takeouts in Canadian small-caps. This has accelerated in recent weeks with the acquisitions of Softchoice, Quisitive, and Carebook. • Our potential takeouts portfolio is up 61% since inception (November 2023) and 13% since our last note, compared to the TSX up 28% and 9% respectively. We review the biggest winners and losers in the portfolio and present a list of new ideas on our radar. How Have Things Progressed? Since our last note on September 5th, acquisitions of Canadian small-caps slowed down for a few months before ramping up again in December, with 11 takeouts occurring (Figure 1). Similar to last time, the acquisitions were across various industries and market caps, but the common themes mentioned in our criteria below stood true. This included the acquisition of RediShred and Payfare which were included on our list. We will reiterate that valuations have drastically improved for fundamentally solid companies as private equity and strategic investors took notice to the trough level multiples. Our takeouts portfolio posted solid performance, being up 13% since the last note and 61% since inception (vs. the TSX up 9% and 28% respectively). Please refer to page three for a review of our performance and changes to the portfolio going forward. Do the New Acquisitions Fit Our Criteria? Looking at the new takeouts, we outline how they fit into our 6-part framework below. 1) Poor Stock Performance – The new cohort of 11 takeouts was down 57% on average compared to their previous ATH, outpacing the overall group at 42%. We continue to view this as a leading indicator that a firm is a takeout candidate given that acquirors are looking for discounted prices. 2) Cheap vs. U.S. & International Peers – A great example of this trend is RediShred which was acquired for 6.3x 2025E EBITDA compared to established U.S. peers at >15x. While retail and small institutions are buying up these undervalued stocks, there is not enough capital in the small/micro-cap space in Canada at the moment to provide a full re-rate. 3) Profitable – 9 of the 11 firms were profitable on an EBITDA basis over the last twelve months. This has been a very consistent indicator with 28 of the 37 acquired firms being profitable. 4) Solid Growth & Tailwinds – On average, the newly acquired companies grew revenue by 40% over the LTM and were expected to grow revenue by 13% next year. 5) Market Cap Over $30M – 7 of the 11 takeouts occurred at a valuation of over $30M, with the average being $260M. We will reiterate that $100-300M market cap range seems to be the sweet spot for takeouts. 6) Private Equity Friendly – Only 3 of the 11 acquisitions were by private equity firms, a major decline from the historical data. This could be a reflection of the increased valuations in the space.