Digital Media Solutions (DMS), a leading performance marketing company that delivers high-intent customers while also de-risking client ad spend, recently announced the completion of a major asset purchase from Crisp Results. The acquisition adds a range of capabilities across Medicare and health insurance, along with other verticals like auto and life. I view the recent DMS acquisitions as an additive to the growth story as the company looks to emerge as a leading digital marketing platform, with the recent strengthening of key verticals likely to support continued growth ahead. Considering the relative discount of DMS shares at the current c. 6x fiscal 2021 EV/EBITDA, I see plenty of upside going forward.
DMS Completes Asset Purchase from Crisp Results
Coming on the heels of the Aimtell, PushPros, and Aramis acquisitions closed earlier this year, DMS’s latest buyout of Cordova-based Crisp Results is another positive step. Crisp Results is a leader in performance marketing, with scalable U.S.-based call center customer acquisition, leads, and clicks solutions focused on the insurance space. In particular, the acquisition adds exposure to Medicare - one of the highest-growth segments of insurance advertising.
The total purchase consideration is as follows - $40 million paid upon closing (comprising $20 million in cash and $20 million in equity), in addition to $10 million in contingent payment structured as an earn-out pending the achievement of key financial targets. Encouragingly, the Crisp Results co-founders are being retained on DMS’s executive team and will receive a c. $5 million deferred payment over the next 18 months, comprising both contingent and deferred payments (payable either in cash, equity, or a combination of the two), at the discretion of DMS.
A Closer Look at the Financial Terms
At first glance, the acquisition of Crisp Results should turn accretive considering the various cost savings and cross-sell opportunities available across insurance categories. The upfront consideration for the transaction at c. $40 million to be paid upon closing (stock and equity) and up to $10 million in earn-outs over the next twelve months, along with a c. $5 million deferred payment, also aligns management incentives appropriately. Together with the c. $20 million DMS paid for the Aimtell and PushPros acquisitions, DMS has now spent c. $65 million for its recent purchases, which implies a reasonable c. 1.5x Sales multiple based on the $40-$45 million in revenue generated by the acquired assets (excluding any contingent consideration).
Enhancing Capabilities in Key Verticals
Strategically, the deal also makes sense - Crisp Results should help expand DMS’s presence in the key insurance vertical, especially within the fast-growing Medicare segment, where its core expertise lies. Following this acquisition, DMS’s footprint has been broadened across health insurance (via the Crisp acquisition), push notifications (via the Aimtell acquisition), which adds significantly to its organic growth potential in the auto insurance vertical.
Source: DMS Investor Presentation Slides
Notably, management views its latest acquisition as in line with its roadmap within auto insurance – much like the acquisition of UE (since rebranded to DMS Insurance), there was already a small business footprint and prior experience in the space before it executed the deal to boost its capabilities further. This time around, the added benefit is Crisp Results’ first-party data collection from consumers, which should allow DMS to bolster its capabilities amid regulatory and technological changes as we transition into a post-cookie world.
Protect.com Emerging as a Key Growth Driver
Since its December launch, the Protect.com online marketplace has also shown strong traction, as laid out in the accompanying press release. Initially launched as an auto insurance marketplace, DMS has successfully executed its game plan to drive expansion across insurance segments such as health, home, and life. Additionally, DMS’s efforts to drive more traffic to its owned properties should enable accretive margins on the back of a favorable mix shift toward higher-margin consumer engagements. Admittedly, recent investments to drive awareness and engagement for Protect.com have impacted the current quarter’s performance, but the path toward accelerating top-and bottom-line growth by year-end remains intact.
Source: DMS Investor Presentation Slides
Notably, by end-FQ1 ‘21, Protect generated c. $3 million in revenue on top of expanding gross margins, reflecting an accretive growth path. This was relatively in line with expectations considering DMS had previously reported in February that Protect.com generated $2.5 million in revenue since its December launch. As the consumer-facing portal moves from beta to production, I see more marketing investments and a more robust contribution to fundamentals over the longer term.
Overall, I am encouraged by DMS’s willingness to continue making acquisitions to accelerate its growth and expand into adjacent markets. Thus far, the acquisitions have been done on sensible terms, and more M&A on similarly attractive terms could provide a positive catalyst to the shares. Despite the strong fundamentals and attractive growth profile, DMS shares continue to trade at a relative discount at the current c. 6x fiscal 2021 EV/EBITDA to performance marketing peers like QuinStreet (QNST), MediaAlpha (MAX), and EverQuote (EVER). Thus, I believe shares are positioned to outperform as the discount narrows and tailwinds from the transition toward digital channels continue.