Earlier today, Converge Technology Solutions (TSE: CTS) announced that it will be acquiring Stone Technologies Group, a UK-based Circular IT solutions provider. Stone Group has helped private and public companies to adapt to changing technology for over three decades. The deal is expected to close in Q4 and represents CTS’s 35th acquisition since 2017. The price of the transaction looks cheap, and it is expected to be accretive to CTS’s revenue and EBITDA.
Details of Converge’s Stone Group Acquisition
Upon closing, C$59.6 million in cash will be paid by Converge to obtain an ~89% interest in Stone. In addition, positive net working capital will be disbursed as well. Next, specific key employees of Stone Group will sell their shares to partially reinvest them into a new Converge UK holding company, representing an 11% minority stake. This will allow Converge to buy out the remaining 11% of Stone over a three-year period.
On a trailing-12-months basis (ended July 31, 2022), Stone Group had gross revenue of C$212.9 million, and its adjusted EBITDA came in at C$9 million. When adjusted for Stone Group’s working capital, the acquisition represents a 6.6x adjusted EBITDA multiple, which seems cheap.
Is Converge Technology Solutions a Good Stock to Buy?
Analysts are very optimistic about Converge Technology. CTS stock earns a Strong Buy consensus rating based on seven Buys and one Hold rating assigned in the past three months. The average CTS stock forecast of C$12.73 implies 108.7% upside potential.
Also, insiders seem to be bullish on the stock, as Converge’s insider confidence signal on TipRanks is “Positive.” This is based on corporate insiders buying close to C$250,000 worth of shares in the past three months. One of the purchases comes from the company’s president Greg Berard, who is a five-star-rated insider, ranked #48 out of 95,397 corporate insiders on TipRanks. Therefore, his purchase is worth considering.
Conclusion: The Stone Group Acquisition Looks Solid
Converge Technology has once again found another acquisition. Its acquisition of Stone Group seems solid because it is expected to be immediately accretive to Converge’s results. The low 6.6x EBITDA multiple paid for the company is promising as well. Meanwhile, both analysts and insiders are bullish on the stock.