Equity Research firm, eResearch Corp. (www.eresearch.com), recently published an 18-page update Equity Research Report on DATA Communications Management Corp. (TSX: DCM | OTCQX: DCMDF) about the Company’s recent announcements that it closed the acquisition of Moore Canada Corporation (MCC), the Canadian operations of R.R. Donnelley & Sons Company, completed a $26.1 million equity offering, sold a warehouse facility, and also released first quarter financial results with the highest quarterly revenue in the past three years.

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, marking a significant milestone in its growth strategy. The cash purchase price for the acquisition amounted to C$130.8 million. 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 are over C$520 million in 2022 and are expected to grow in 2023.

DCM plans to accelerate its revenue growth by capitalizing on an expanded range of products and services, better execution capabilities, and improved time-to-market for new offerings. As a result of the merger, DCM anticipates unlocking annualized post-merger synergies in the range of C$25 million to C$30 million over the next 18 to 24 months. These synergies represent a significant opportunity for the company to optimize its operations and drive increased profitability.

The transaction was funded through fully committed credit facilities from a Canadian chartered bank and Fiera Private Debt. As part of the deal, DCM acquired three sites currently owned by RRD Canada at an implied value of approximately $30 million. The company intends to enter into a sale and lease-back arrangement for each site and the Oshawa, Ontario warehouse was sold in May for net proceeds of C$23.1 million.

In the update report, eResearch reported that it believes this transaction enhances DCM’s capabilities and growth potential. RRD Canada has a highly complementary operating model and is expected to add new products, services, and technology capabilities. eResearch wrote that it believes the deal should be accretive to DCM’s financial profile as it accelerates DCM’s revenue and EBITDA growth, and diversifies its revenue base.

DCM also reported first-quarter financial results for 2023 with revenue of C$76.1 million, up 9.8% from $69.3 million in the first quarter of 2022, and higher than our estimate of C$72.7 million. Sales growth was driven by revenue expansion from existing clients and new business wins. It is the sixth consecutive quarter of year-over-year growth. The second quarter financial results will include more than two months of consolidated reporting with MCC but the company is still forecasting at least 5% of organic revenue growth.

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 0.5x 2023 Enterprise Value to Revenue (“EV/Revenue”) compared with printer comps trading at 0.9x EV/Revenue and well below the Digital Asset Management (DAM) and Tech-Enabled Workflow providers trading at 4.0x and 2.4x EV/Revenue, respectively.

Chris Thompson, Director of Equity Research of eResearch wrote, “DCM’s recent merger, equity financing, real estate sale & leaseback, and first quarter results were all positive for the Company valuation according to our model” and “DCM continues to trade at multiples below the low end of its industry comps and highlight the potential for DCM’s share price appreciation.”

For more information about eResearch's 18-page update Equity Research Report on DCM, please visit www.eresearch.com.

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