DCM Acquisition Provides 75% Revenue Jump & Cash Flow Growth as Merger Synergies Drop to the Bottom Line

Equity Research firm, eResearch Corp. (www.eresearch.com), recently published a 14-page update Equity Research Report on DATA Communications Management Corp. (TSX: DCM | OTCQX: DCMDF) as the company closed the acquisition of Moore Canada Corporation (MCC) and also released second quarter financial results with a 75% jump in revenue.

DCM is a Canadian-based provider of marketing and business communication solutions to companies in North America. Its technology-enabled content and workflow management capabilities, and data asset management (DAM) solution solve the complex branding, communications, logistics, and regulatory requirements of leading enterprises, so its clients can accomplish more in less time.

In April, DCM completed the acquisition of MCC for C$135.8 million, marking a significant milestone in its growth strategy. In the update report, eResearch reported that it believes this acquisition presents an opportunity for DCM to strengthen and expand its business, solidifying its position in the Canadian market. Currently, the combined pro forma revenues of DCM and MCC were over C$520 million in 2022 and are expected to grow in 2023.

DCM immediately initiated planned efforts to create organizational synergies to improve sales and reduce costs. In connection with a reduction of approximately 30 associates from the combined team, restructuring expenses of $2.7 million were booked. The company anticipates annualized savings of around $4.2 million from this initiative and guides for total annualized post-merger synergies in the range of $25 million to $30 million over the next 18 to 24 months.

Although the debt increased significantly to $112.7 million due to DCM financing the acquisition with debt, during the quarter, it proceeded to make repayments, closed a $26.1 million Equity Raise, and $23.1 million facility sale to help deleverage the Balance Sheet.

On August 10, 2023, DCM reported second-quarter financial results with Revenue of $119.0 million, up 74.7%, which exceeded eResearch’s estimate by $5.8 million. Unadjusted EBITDA in the second quarter was up 33.2% to $10.6 million. Year-over-year revenue and EBITDA growth were mainly attributable to the acquisition of MCC, which closed during the quarter.

Even with DCM’s recent share price increase and based on eResearch’s model estimates, DCM has a low valuation multiple compared to its peers. The company is currently trading at 0.8x 2023 Enterprise Value to Revenue (“EV/Revenue”) compared with printer comps trading at 0.8x EV/Revenue but well below the Digital Asset Management (DAM) and Tech-Enabled Workflow providers trading at 3.1x and 1.2x EV/Revenue, respectively.

Chris Thompson, Director of Equity Research of eResearch wrote, “DCM’s recent merger, equity financing, real estate sale & leaseback, and second-quarter results were all positive for the company’s valuation according to our model” and we continue to believe this transaction enhances DCM’s capabilities and growth potential, with economies of scale and new products, services, and technology capabilities.

For more information about eResearch’s 14-page update Equity Research Report on DCM, please visit www.eresearch.com.

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