Small Cap Research Sample - Smallcap Sleeper Wake-Up Call

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ACR Group Inc (amex: BRR)

WAKE-UP: BRR Signs $6.75 Cash Buyout Agreement with Watsco, Inc. (+181.3%)

WAKE-UP CALL - July 5, 2007

Congratulations to all subscribers that agreed with our initial publication on the ACR Group, Inc. (amex: BRR) back in October 2005. If you picked up any BRR shares around the initial $2.40 per share publication price, you should be pleased with today's takeover announcement. On Thursday morning, BRR announced the signing of a definitive merger agreement under which Watsco, Inc. (nyse: WSO) will seek to acquire BRR's common stock in a cash tender offer of $6.75 per share.

Watsco is the largest independent distributor of air conditioning, heating and refrigeration equipment and related parts and supplies in the HVAC industry, currently operating 385 locations serving over 40,000 customers in 32 states.

Watsco has agreed to commence a tender offer for BRR's stock as soon as practicable at a price of $6.75 per share. BRR's Board of Directors has unanimously recommended that shareholders tender their shares in the offer. Executive officers of BRR and their affiliates have agreed to support this transaction and to sell shares representing approximately 26% of BRR's outstanding shares.

The completion of the tender is conditioned upon the number of tendered BRR shares and the shares purchased under the officers' support agreements being at least 66 2/3% of the outstanding shares, as well as regulatory approvals and other customary closing requirements. Watsco reasonably believes it will obtain the necessary financing for the transaction and expects to close the merger transaction in August 2007.

Houlihan Lokey Howard & Zukin is acting as financial advisor to BRR and has rendered a fairness opinion to its Board of Directors with respect to the tender offer and merger.

For future reference, the $6.75 per share cash buyout creates the following valuation multiples based on BRR's trailing twelve month financial statements:

Price/Sales = 0.33
Price/EBITDA = 5.97
Price/Earnings = 13.69
Price/Cash Flow = 10.83
Price/Free Cash Flow = 13.53
Price/Book Value = 2.88
EV/Sales = 0.43
EV/EBITDA = 7.86
EV/Earnings = 18.02
EV/Cash Flow = 14.25
EV/Free Cash Flow = 17.81
EV/Book Value = 3.79
EPS Yield = 7.30%
ROA = 6.90%
ROE = 21.04%
Current Ratio = 2.41
Debt/Equity = 0.96

CONCLUSION: Wake-Up Time
The BRR story is a perfect example of how patience pays off, especially once you've found a solid company with growth and lagging valuations...You know, the Smallcap Sleeper Formula. Since our initial report, published on October 10, 2005, BRR has run nicely from $2.40 to highs above $6.00 in the fall of 2006. At that time, we felt the company was still undervalued, but the shares pulled back to a $4.50 base. Looking at the buyout multiples, we believe Watsco is getting a good deal and BRR shareholders are getting a decent price, and not too far below what we would consider current fair value.

Due to today's definitive cash buyout offer, we are issuing a "Wake-Up Call," and removing BRR from our model portfolio at $6.75 per share for a +181.3% gain.

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