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Gustafson eyes up the wheel deal for Challenger Acquisitions

“When I looked at the attractions space, demand was strong with multiple cities around the world looking to build giant observation wheels," said Mark Gustafson, founder of Challenger Acquisitions, which made its debut on London's stock market in February. 

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Given the rising tide of concerns flooding the oil, gas and mining markets lately, it is no surprise to see certain players head for higher ground.

Mark Gustafson has done just that, quite literally, with a full circle switch from managing resource projects to positioning his new public company to eventually build, own and manage big wheels.

It might seem like an odd turn, but the ex-Euromax Resources (TSX) boss believes the move makes sense for many reasons.

“I just don’t see the junior resource space attracting the necessary capital over the next couple of years,” he told Proactive Investors.

“When I looked at the attractions space, demand was strong with multiple cities around the world looking to build giant observation wheels. 

“They’re also hugely popular and profitable, providing they’re in the right location. 

“We also consider these projects to be more recession-proof than investing in resource plays,” he claims.

Funding these types of projects usually proves difficult though with the structures costing US$10mln for smaller wheels and close to US$100mln for large wheels.

That’s why Gustafson’s new vehicle, Challenger Acquisitions (LON:CHAL), has joined the ride.  

His idea is to fund select projects through a mixture of debt and equity using Challenger’s status as a listed vehicle. 

The company would then take a majority stake in each attraction along the way, picking up a steady revenue stream.

It’s already off to a flying start thanks to a co-operation deal with Starneth, the company whose chief executive officer (CEO) and key members help to design and engineer the hugely successful London Eye.

The world famous South Bank structure turns an impressive profit annually and has been visited by millions since its millennium launch.  

Gustafson points to its success and doesn’t see why new wheels planned in other cities can’t match up.

Crucially, Starneth has a pipeline of 30+ projects in select locations around the globe which Challenger can now access. 

Starneth is also helping to design and engineer the New York wheel, which may be the world’s biggest when it opens on Staten Island in 2017.

Gustafson’s objective with Challenger this year is to search for and initiate acquisitions in wheel projects this year.

“Building a wheel near water, close to existing landmarks and in an area with large numbers of visitors seems to be a recipe for success,” said Gustafson. 

“That’s the kind of location we want to be focusing on.” 

“Although it’s early days, the great thing is that Starneth already has strong relationships with local development teams in many international cities.”

Under the co-operation agreement, Starneth can provide the engineering, design and project management on any giant observation wheels that Challenger becomes involved in.

Gustafson’s longer term game plan is to claim a majority stake in several big wheels throughout the world.

Early signs suggest investors are on board. Shares in the business debuted at 10p in February and have already increased significantly.

“We’ve been very well received, but now we have to explore and work on the potential business opportunities in this sector.”

Ultimately, Gustafson believes the free cash flow generated from some of the projects could even turn Challenger into a dividend paying stock.

But the former Triangle Petroleum (NYSE) boss says this may happen over the long term.

“I’m committed to helping build Challenger over a multi-year basis,” he added

Shard Capital, meanwhile, is keeping a close eye on the company.

“Whilst the headline risk still exists, that of not finding and funding a suitable acquisition, the focus is now clearer and we look forward to further developments and announcements,” the broker said in a recent note. 

Quick facts: Challenger Acquisitions Limited

Price: 0.13 GBX

LSE:CHAL
Market: LSE
Market Cap: £410.2 k
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