New Tools In Troika's Toolbox? Converge Acquisition Could Lower Customer Acquisition Costs

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As in-person events and corporate marketing budgets bounce back after being suspended during the COVID-19 pandemic, brand consultant Troika Media Group Inc. TRKA reports that it is seeing more demand for its digital content, media expertise and data and analytics. 

“The economic reopening has been a tailwind to the company’s core branding business,” EF Hutton analyst Ben Piggott wrote in an April 13 report. “We view recent weaknesses in the share price as a buying opportunity.”

EF Hutton reiterated its Buy rating and $4.50 price target on shares of Troika in its April 13 report on the company.

Troika also is poised to benefit from its $125 million acquisition of Converge, a digital and off-line performance media and marketing company, according to the EF Hutton report. 

With the pandemic forcing corporate marketing leaders to rethink their budgets and highlighting the need to reach consumers through digital channels, Troika says it is focused on providing clients fully integrated digital and creative offerings through digital channels, an effort that is expected to see a boost from the Converge acquisition. 

“The acquisition is a big step towards building a fully integrated end-to-end brand solutions and marketing platform that comes with significant technological capabilities,” Piggot states in the EF Hutton report. 

A Revenue Generator?

Converge’s proprietary Helix platform is redesigned to integrate data and technology to provide useful customer insights for one-to-one marketing campaigns that help customers track, report and optimize their marketing strategies for better results, including higher conversion rates, lower customer acquisition costs and increased lifetime value.

Converge, with its recurring revenue model, generated approximately $300 million of gross revenue  and net income of approximately $21 million in full- year 2021 and has 90% retention rates.

Following the acquisition, EF Hutton estimates the company will record $24 million in earnings before interest, taxes, depreciation and amortization (EBITDA) in fiscal 2022, putting net leverage at 1.4x, which the financial services company considers a comfortable position. 

“We believe that as the market becomes more familiar with the strength of the combined Troika/Converge platforms that shares have material room to rerate higher,” Piggott wrote.

The Converge acquisition comes with risks, including the possibility that the combined entity’s revenue synergies may not materialize and the exposure of digital marketing companies to the ever-changing algorithm landscape of companies like Meta Platforms Inc. FB, Apple Inc. AAPL and Alphabet Inc.’s GOOGL Google.

Troika Media Group and Mission, the company’s well-established brand consultancy business, has offered creative design and consumer engagement solutions to clients for more than 20 years.

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