NowVertical has 221 per cent upside, says Beacon

Toronto-based vertical intelligence software company NowVertical Group (NowVertical Group Stock Quote, Charts, News, Analysts, Financials TSXV:NOW) is keeping its M&A engine running, and its latest acquisition just received a thumbs up from Beacon Securities analyst Gabriel Leung. In a Thursday report to clients, Leung reiterated a “Buy” rating and C$1.70 per share target price on NowVertical, which at the time of publication represented a projected one-year return of 221 per cent. 

To be NowVertical’s 12th acquisition to date, the company announced on Thursday a definitive agreement to acquire A10 Group, a big data intelligence company based in Latin America. Founded in 2004, A10 Group has had over 700 clients from government and private sector. 

The deal is pegged at $6.45 million, including $4.95 million in cash, 550,000 in shares and an undisclosed earn-out consideration paid over four fiscal years based on EBITDA targets. NowVertical said the transaction is expected to close during the first quarter 2023. In conjunction with the acquisition, NOW announced a new $7 million credit facility agreement, maturing in 72 months with interest at US prime plus three per cent.  (All figures in US dollars except where noted otherwise.)

“The acquisition announced today represents a significant expansion into the LATAM market with new operations in Brazil, Chile and Mexico,” said Daren Trousdell, NowVertical Chairman & CEO, in a press release. “We had already established a significant presence in the region with our CoreBI acquisition earlier this year. Today, with our 12th acquisition, we are adding one of the region’s premier big data solution providers with a highly seasoned team of more than 175 individuals.”

Looking at the proposed acquisition, Leung said A10 is expected to add $23.5 million to NOW’s revenue and $2.5 million in adjusted EBITDA, before considering possible synergies. Leung said those numbers imply a take-out valuation of about 0.2x sales and about 2.2x EBITDA before earnouts.

Leung said after factoring in recent pending acquisitions, NowVertical has a pro forma revenue run rate of $70 million and EBITDA run rate of $4.5 million.

On the A10 Group acquisition, Leung wrote, “We believe this acquisition should represent an accretive transaction for NOW, which further boosts its presence in the LATM market and offer meaningful cross-selling opportunities with NOW’s in-house IP.”

“We are maintaining our estimates pending the close of the company’s three recently announced acquisitions, along with additional details around earn-out considerations,” he said.

For now, Leung is forecasting full 2022, 2023 and 2024 revenue of $26.9 million, $37.9 million and $42.8 million, respectively, and 2022, 2023 and 2024 EITDA of negative $2.1 million, positive $0.3 million and positive $1.4 million, respectively.