Echelon Capital Markets analyst Amr Ezzat has a bone to pick with the way the market values Canadian tech company Calian Group (Calian Group Stock Quote, Chart, News, Analysts, Financials TSX:CGY). In a report to clients on Monday, Ezzat argued the Street doesn\u2019t see the full picture on Calian, especially when it comes to the upsized potential of its M&A activity. Ottawa-based Calian Group provides business and technology services in the areas of Health, IT, Leaning and Advanced Technologies to both industry and government in Canada and worldwide, with over 3,000 employees globally. The company announced on Monday the acquisition of Toronto-based Dapasoft and its wholly-owned subsidiary iSecurity for an upfront payment of $50.0 million. The deal includes $43.0 million in cash and $7.0 million in shares along with $33.0 million in earnouts over the next two years, which would come as $17.5 million in cash and $15.5 million in shares. Dapasoft provides systems integration, cloud lifecycle management and cybersecurity solutions. \u201cWe see demand from organizations of all sizes to modernize their healthcare infrastructure and manage cyber risk, and they are looking for a trusted partner in this endeavour,\u201d said Kevin Ford, Calian CEO, in a press release. \u201cThe addition of Dapasoft\u2019s people, products, and services broadens and deepens the digital healthcare offerings of our IT and Cyber Solutions division.\u201d \u201cDapasoft and iSecurity will enable us to offer a greater range of cloud migration, cybersecurity, and managed security solutions to our entire customer base,\u201d said Sandra Cote, President of Calian IT and Cyber Solutions (ITCS), in the press release. \u201cCalian has the bench strength to scale Dapasoft and iSecurity offerings to meet customer digital transformation demand.\u201d On the acquisition, Ezzat estimated it will add about 20 per cent to Calian\u2019s run-rate EBITDA per share if the earnout targets are met in the two-year timespan. In his update, Ezzat noted it\u2019s the sixth acquisition by Calian over the last 12 months, which shows how the company is able to effectively and accretively deploy capital. \u201cMore importantly, we are encouraged in that the acquisition adds depth and breadth to Calian\u2019s core capabilities, thereby accelerating its go-to-market strategy in the rapidly growing digital healthcare space. The acquisition provides Calian with increased exposure to high-end blue-chip customers with a recurring revenue base,\u201d Ezzat said. Ezzat noted Calian\u2019s revised fiscal 2021 guidance, which calls for a 3.3-per-cent increase in sales and a 6.8-per-cent increase in EBITDA over a projected seven months of acquisition contribution. The new 2021 guidance would represent at its mid-point 14.7-per-cent year-over-year sales growth and 27.7-per-cent year-over-year EBITDA growth. Accordingly, the analyst has revised his estimates on Calian and is now calling for fiscal 2021 (year end September 30) revenue and EBITDA of $484.8 million and $45.9 million, respectively, and for fiscal 2022 revenue and EBITDA of $525.4 million and $58.5 million, respectively. Ezzat said Calian is a quality diversified operation with a deep bench, an underleveraged balance sheet and \u201ca solid track record\u201d of value creation through both acquisition and innovation. At the same time, Ezzat thinks the stock and company are undervalued. \u201cCGY has all the bells and whistles an investor would seek out in a quality company,\u201d Ezzat wrote. \u201cThe stock has tripled in the last three years, as management transitioned its philosophy and growth strategy from what was a \u2018steady Eddie\u2019 operator with stable revenues\/earnings, to one seeking to capitalize on growth in a more aggressive fashion.\u201d \u201cWe argue that the Street has consistently underestimated valuation by failing to recognize the accretion potential of M&A on Calian\u2019s earnings and more importantly on its valuation,\u201d Ezzat said. \u201cWe believe using EBITDA\/earnings multiple on short-term earnings estimates significantly (and incorrectly) undervalues Calian\u2019s shares as it gives no recognition to the Company\u2019s inorganic growth activity (and indeed, its underleveraged balance sheet).\u201d \u201cAdmittedly, we recognize the difficulty in modelling M&A contribution in forecasts (predicting size and timing is throwing darts in the dark), but we still believe it sensible to reflect M&A in our valuation. As such, our DCF derived target price incorporates capital deployment into M&A. We are comfortable enough with the Company\u2019s track record of executing accretive transactions to give CGY some future inorganic growth benefit,\u201d Ezzat wrote. With the update, Ezzat has reiterated his \u201cBuy\u201d rating on Calian and raised his target price from $77.00 to $85.00, which at press time represented a projected 12-month return of 45.9 per cent. Earlier this month, Calian released its first quarter 2021 numbers for the period ended December 31, 2020, reporting revenues of $116 million, which was a 17-per-cent year-over-year increase, and record adjusted EBITDA of $10.4 million, representing a 24-per-cent year-over-year increase. Calian\u2019s share price finished calendar 2020 up 72 per cent, while so far in 2021 the stock is down ten per cent.