Which ASX micro caps have potential to grow exponentially through big partnership deals?
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There are many high-quality micro cap companies operating across all sectors of the Australian economy.
Some could one day grow into large companies, but many would become stagnant, get stuck in a rut and spend years floundering.
Evidence however suggests that bringing in a quality partner or saddling up with big players could be a transformative move – providing those micro caps with the potential for significant capital and share price growth.
There are countless examples of small companies that grew exponentially after partnering with top guns.
GPS navigation app Waze was a no-namer before it hitched up deals with Apple and Ford to integrate their services into the app. Waze was eventually acquired by Google for US$1.1 billion in 2013.
Team communication app Slack got big by partnering with Google, Salesforce, and Dropbox before it was eventually acquired by Salesforce for US$27.7 billion in 2020.
Beyond Meat, the plant-based meat substitute company, saw its sales skyrocket after signing supply deals with big grocery stores Whole Foods and Kroger, and fast-food chains McDonald’s and KFC.
On the ASX, there are also examples of once micro caps that had grown into unicorns following some major deals.
Pro Medicus (ASX:PME) comes to mind. The company partnered with IBM Watson Health in 2018 to integrate its medical imaging software into IBM’s global health platform – after which sales took off.
Appen (ASX:APX) also grew into a $1 billion company (before pulling back) after partnering with Microsoft in 2019 to develop artificial intelligence technology.
Seek’s (ASX:SEK) market cap has been growing significantly since 2015, the year it partnered with Chinese recruitment firm Zhaopin.
Another ASX company that could be on the cusp of big things is micro cap Wellnex Life (ASX:WNX).
The health and wellness specialist has just signed a groundbreaking deal with leading national retailer, Chemist Warehouse (CW).
Wellnex Life will launch five new medicinal cannabis products with CW as it looks to gain a strong foothold in the burgeoning sector. Under the deal, CW will receive 10% equity in a joint venture alongside OneLife Botanicals.
The first of the five products is set to be delivered by the end of FY23. WNX will also distribute the products to additional pharmacy channels that will complement the extensive CW network.
Wellnex CEO George Karafotias said the Chemist Warehouse deal has given Wellnex the confidence that it is on the right track with its business plans.
“This is such a pivotal relationship for Wellnex,” Karafotias told Stockhead.
“Companies as large as Chemist Warehouse do not enter into relationships unless they can see something innovative or unique that will bring a significant return.”
According to Karafotias, the partnership also gives Wellnex the credibility in the market that makes other participants take notice.
“Further, to partner with Chemist Warehouse in the medical cannabis space is a great achievement, as it will gives us the best chance to take a great slice of this growing market, such is the reach of the largest pharmaceutical retailer.”
Karafotias said that Wellnex is now potentially looking to enter into other relationships to take advantage of the unique product and brand offering that it’s currently building.
The company is carefully going through the process of putting things in place to be one of the first to enter the over-the-counter (OTC) medicinal cannabis market under the Schedule 3 (S3) classification.
Wellnex expects the S3 market – which removes the prescription requirement hurdle for consumers – to be significantly larger than the SAS-B market, representing a significant opportunity for the company.
“This is not a race as you need to ensure you cover all aspects to obtain the required approval,” explained Karafotias.
“The cost and time taken to obtain this approval is considerable, and you want to make sure you get it right the first time.”
“We have assembled an experience team that will help us navigate through this process,” said Karafotias.
In Februrary, sustainability software player Simble secured a one-year deal with Origin Energy to provide the SimbleSense solution to their commercial and industrial customers.
SimbleSense enables customers to use real time data to monitor energy usage, identify trends and potential savings opportunities, and to assist in measurement and verification of energy efficiency projects.
The platform will be offered by Origin Zero, a business unit of Origin that provides energy solutions and services to their large business customers – including helping them to decarbonise their energy supply.
MKL has a ‘technology partnership’ deal with Google, which is a hire-for-work contract for the development of gaming experiences.
Although details are scant, MKL recently announced an extension of the deal for an additional nine months.
“We’re thrilled to extend our partnership with Google LLC, allowing us to continue utilising the strengths of our team to innovate and create unique experiences,” said Mighty Kingdom CEO, Philip Mayes.
Smart locker specialist TZL entered into a three-year licence software agreement with global giant Ricoh in August last year.
TZL said Ricoh had very specific needs to support their first mile and last mile package logistics ambitions, and the multinational company had selected TZL after an extensive evaluation process.
The deal will see TZ receive a software total contract value (TCV) of $950k to be paid in 3 tranches, with the first payment of $250k already paid and the balance by 30th June this year.
The data network company has a client base of blue chip global companies including Amazon, BHP, Qantas and Virgin.
It also has contracts with The Ministry of Defence and retailers like Nike and IKEA.
The company sees a $300bn market opportunity and has engaged a leading US advisor Atlas Technology to help identify those opportunities.
The human resources Software-as-a-Service (SaaS) company received purchase orders from Rio Tinto earlier this week for on-the-job training programs in Western Australia for approximately $378k.
Schrole will deliver 28 courses to approximately 220 staff across Rio Tinto’s facilities in WA.
“Schrole is proud of its strong relationship with Rio Tinto in Western Australia,” said CEO, Rob Graham.
“Schrole Develop’s training supports the Rio Tinto team to meet the growing demand for green minerals while maintaining industry best practice in on-the-job training.”
Remsense has developed an IP-owned virtualplant technology initially under contract from Woodside Energy.
The technology is currently used in Australia by Woodside, Chevron and other global clients.
The company also has international agreements in place with major enterprise asset management providers including IBM.
REM says virtualplant is proven technology endorsed by both AWS and IBM.
At Stockhead we tell it like it is. While Wellnex Life and Simble Solutions are Stockhead advertisers, they did not sponsor this article.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.