On December 20, 2018, Ralph Garcea of Focus Merchant Group (FMG), formerly the Tech Analyst at Echelon Wealth Partners, issued a research report on Converge Technology Solutions, Corp. (TSXV:CTS).
CTS is building a North American Hybrid IT Solutions Provider by acquiring smaller, regionally-focused Hybrid IT solutions companies and enhancing their ability to provide various technical solutions including networking hardware, cloud, blockchain, resiliency, and managed services.
Converge was founded in 2016 and started trading on November 2018. To date, CTS has completed six acquisitions, including: Corus Group, Northern Micro, Key Information Systems, Becker-Carroll, BlueChipTek, and Lighthouse Computer Services; and made a strategic investment in Essex Technology Group, with financial support from Ingram Micro.
CTS’ acquisition strategy is predicated on organic growth within each target company through cross selling of new solutions into the existing client base and not by cost cutting. In addition, cost reductions are achieved through better vendor pricing, rebates and additional market development funds for CTS’s acquisitions from achieving top vendor certification such as Cisco Gold and IBM Platinum.
CTS is at the start of Phase 2 of a 3-phase growth strategy to build a $2-3 billion revenue company with EBITDA in the range of $80-120 million by 2021. The Company expects to achieve this growth by completing 4 to 6 acquisitions per year. For the nine months ended September 30, 2018, revenue was $323.1 million with an adjusted EBITDA of $10.7 million.
Incorporating all of the acquisitions on an annual basis, Mr. Garcea estimates the Company’s current 12-month revenue run-rate will be approximately $600 million with EBITDA of $23 million and, at the time of his report, CTS was trading at an EV/EBITDA of less than 6x versus the North American IT Services and Global VAR comparables that are trading at more than 10x EV/EBITDA.
You can access the report at the following link: FMG_Research_CTS_Dec2020_18
