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DTGI: A Roll Up Play in the Fast Growing, Fragmented UCaaS Market


By Lisa Thompson



➢ Digerati (OTC:DTGI) sells Unified Communications as a Service (UCaaS) to SMBs primarily in Texas and Florida. UCaaS brings VoIP, video conferencing, instant messaging, and collaboration tools together on one platform that is hosted in the cloud. As well as being more cost effective and flexible in the office, it allows workers to enjoy all the features of an office-based system remotely and gives businesses more choices in the applications it chooses. Digerati’s UCaaS solution also integrates with systems like Microsoft Teams and Oracle NetSuite, becoming the cloud telco engine behind these popular systems.

➢ UCaaS solutions primarily replace premised-based systems making maintenance and upgrades easier and cheaper for the client. Digerati specializes in providing service with superior customer service to the large telcos that are the usual providers to these businesses.

➢ Digerati is in the early stages of its roll up strategy funded by its new financing partnership with Post Road Group. In November 2020, it bought Nexogy and ActivePBX for approximately $12 million, the two of which are expected to add at least $8 million in annual sales and $1.5 million in EBITDA. It plans to continue to buy companies opportunistically and accretively.

➢ Seasoned management that successfully has built and sold other public telecom and software companies and created solid returns for investors runs the company.

➢ The UCaaS industry is highly fragmented and growing rapidly. Fifty percent of the US market is served by local and regional providers. The global UCaaS market is currently $38.7 billion and expected to be $169 billion by 2027, or a CAGR of 23.5%.

➢ The company trades at a fully diluted (using 273 million shares) enterprise value of $44 million or 2.9 times its calendar 2021 estimated sales of $15.3 million versus its peers who trade at 7.1 times. As its growth strategy, improved margins, and positive cash flow are evidenced in the future, we believe it could trade closer to the peer group.

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