What you need to know: • Since our last note in May, there have been 10 additional takeouts in Canadian small-caps, most of which coming in a significant premiums. • The new acquisitions largely fit within the framework outlined in previous reports. • Our potential takeouts portfolio is up 43% since inception (November 2023) and 17% since our last note, compared to the TSX up 18% and 3% 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 May 13th, takeouts of Canadian small-caps has accelerated, with 10 additional takeouts occurring (Figure 1). The acquisitions were across various industries and market caps, but the common themes mentioned in our criteria below stood true. This included 2 of the 6 companies profiled in our last note (read here), Xybion Digital and OneSoft. While valuations in this space have slightly improved as the trend in strategics and private equity buying out Canadian small-caps has become evident, we still believe there are many misunderstood and overlooked stories. Our takeouts portfolio has performed tremendously well, being up 43% since our first report, and 17% since our second (vs. the TSX up 18% and 3% respectively). See 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 since May, we outline how they fit into our 6-part framework below. 1) Poor Stock Performance – Amongst the 10 acquired firms, the average stock was down 22% compared to its previous ATH. This compares to 36% across the entire group, as valuations and stock prices have improved lately (perhaps due to the increased takeout activity). 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 – We will reiterate that Canadian equities remain much cheaper than their U.S. and international peers due to the lack of liquidity and institutional capital. While retail and some smaller institutions are buying up these underfollowed stories, there is not enough capital in the small/micro-cap space in Canada at the moment to provide a full re-rate (hopefully this changes soon). 3) Profitable – 6/10 firms were profitable on an EBITDA basis over the last twelve months. This was fairly consistent with the past acquisitions, but we will note that the average EBITDA margin has declined, potentially speaking to the low-hanging fruit already being acquired. 4) Solid Growth & Tailwinds – On average, the newly acquired companies grew revenue by 11% over the LTM and were expected to grow revenue by 21% in the next year. Again, a step down from the previous cohorts. 5) Market Cap Over $30M – All 10 of the takeouts occurred at an equity valuation of over $30M, with the average being $495M. This demonstrates that we should not be fishing in the nano-cap pond. 6) Private Equity Friendly – 4 of the 10 companies were acquired by private equity firms, a decline compared to the previous cohorts that were dominated by private equity. However, we are choosing to maintain this criterion in our framework given its history (62% of takeouts).