Mediagrif CEO not one to go gently into the night

Some of the biggest names in Quebec business lit up an investors
Powwow in Toronto in early June. So you might think it was tough focusing on a smaller Quebec outfit, Mediagrif Interactive Technologies Inc. (MDF-TSX, $20.01)
which operates several business-to-business web sites. But it wasn’t.

During the week of the investors conference, Claude Roy, Mediagrif’s president and CEO, gave a private presentation in Toronto. And what a dazzling presentation it was!

Admittedly, at 65 Mr. Roy is no spring poulet. But he is a magician when it comes to all things web-related.

When asked why in July 2010 he sold Logibec Groupe Informatique, his successful
software outfit, to pension fund giant OMERS – just a little too early and a little too cheap, Mr. Roy explained that from a personal perspective, he’d gone as far as he wanted with Logibec and that it was time for a new challenge.

He also noted that OMERS is doing a good job running Logibec.

However, perhaps the focus should be on Mr. Roy’s latest accomplishment: turning Mediagrif around. Since he took the helm in December 2008, its stock has jumped to
roughly $20 from $1.73 a share.

Of course, it was always clear that some of Meidagrif’s web-based solutions were quite valuable.

Brian Pow also started following the company which is based in the Montreal suburb of Longueuil. Mr. Pow, a market maven with Acumen Capital Partners in Calgary, specializes in small-cap growth and income stocks. And when he latched on to Mediagrif, it was trading at just $5 a share. Nonetheless, in early July, it was just over $20.

So, given that Mr. Roy’s pride and joy is one of the best junior web companies out there, it might be a good idea to buy in.

Yet, what exactly did Mr. Roy do? He reduced the number of offices worldwide to six from 16, cut the head count to 280 from 450 and made Albany, N.Y. the base of the company’s U.S. operations.

Albany was a smart choice. Not only was it an easy commute from either New York or Toronto, but it had access to a good local workforce without the costs that Mediagrif would have incurred in siting its U.S. headquarters in a pricier city, say, Los Angeles.

In revamping Mediagrif, Mr. Roy also sought out more business titles generating transactional revenue. One of these acquisitions was InterTrade Systems, an e-commerce company headquartered in Laval, Que. Mr. Roy bought it in December 2010.

InterTrade provides an automated supply chain platform to such U.S. retail giants as Nieman Marcus and Lord & Taylor.InterTrade also does the same thing for Bombardier. Inc. (BBD.A-TSX, $4.73), Canada’s top maker of business jets; Rona Inc. (RON-TSX,
$11.40), the Quebec-based chain of hardware stores and Uni-Select Inc. (UNS-TSX, $21), a North American distributor of replacement parts for the automobile industry.

More recently, Mediagrif has added SNC-Lavalin Group Inc. (SNC-TSX, $44.36), the global construction and engineering giant, to its stable of clients.

Mr. Roy says that with many companies, the paperless trail is here to stay. Businesses want web- based speed, lower costs and efficiencies, along with just-in-time inventories. And they want these services to remain.

Meanwhile, Mediagrif has set up Merx, an electronic tendering service under which companies can submit bids to do business with departments of Canadian provincial governments, as well as with businesses themselves.

Mediagrif’s other web platform, Global Wine & Spirits, enables wine makers worldwide to do business with Societes des alcools du Quebec, Quebec’s provincially owned liquor commission.

Yet another Mediagrif website is Jobboom, www.jobboom.com, a Quebec-focused online recruitment site that’s reported to have more than one million users.

After top-ranked Workopolis, Jobboom, which Mediagrif bought from Quebecor Media, is the most popular site of its type in Quebec, says Nick Agostino, special situations analyst with Laurentian Bank in Toronto.

Mediagrif has also promised to buy another site from Quebecor Media, Reseau Contact. Quebec’s most popular dating site, Reseau Contact reportedly attracts more than one million users. One thing is certain: in la belle province, the search for significant others is clearly on a roll!

Not only do these two websites strengthen Mediagrif’s consumer division, they also give it top-line revenue of nearly $20 million. Moreover, at 45 to 50 per cent, their margins on EBITDA (earnings before interest, taxation, depreciation and amortization) are juicy, to say the least.

Then, too, on-line employment and personal ads are considered natural extensions of LesPac.com, a platform Mediagrif bought in November 2011 from Yellow Media Ltd. (Y-TSX, $11.06).

In the jargon of web business, all of this is B2C and C2C, or business to customer, as well as customer to customer.

Not surprisingly, Mediagrif has its share of competitors, such as NIC Inc. (EGOV NASDAQ, $17.90), a Kansas-based outsourcer of government web sites, portals and interactive applications. With a market cap of US$1.2 billion and revenue of more than US$230 or million, NIC is four times Mediagrif’s size.

Admittedly, NIC is pricier than Mediagrif, trading as it does at 40 times earnings. By contrast, the latter trades around 20 times earnings. But keep in mind that in almost any business sector, U.S. companies are often priced higher.

Perhaps of greater moment, the scale of NIC’s operations shows just
how important a commercial website really is. With portals in 29 U.S. states, the company’s population base is moving well up toward half the total U.S. population.

Another Mediagrif competitor is SPSC Commerce Inc. (SPSC-NASDAQ, $56.97). Headquartered in Minneapolis, SPSC Commerce is, like Mediagrif, tilted to commercial clients. Although boasting a market capitalization of just US$860.6 million,
the company now trades at more than 600 times its current market
price.

For his part, Mr. Roy wants to build Mediagrif’s reputation as an
outfit for trustworthiness and straight dealing. He also wants to bulk up, raising the company’s market cap to $500 million from $227 million and then to $1 billion.
So, he’ll court those husband-and-wife teams whom he suspects will eventually want to sell their business.

Nonetheless, the secret of success, says Mr. Roy, isn’t so much as buying as successfully integrating businesses one does buy.

In the interim, Mediagrif is in good financial shape, with $32 million in the bank. It’s also cut its debt, thanks to a $35 million private placement it organized last year.

For his part, Mr. Roy loves to build recurring revenue streams; Mediagrif’s now tops 60 per cent, although this still trails the 92 per cent Mr. Roy logged at Logibec.

Still, his interests are closely aligned with the shareholders, given
his 21 per cent ownership stake in Mediagrif itself. The public owns 22.8 per cent of the company’s stock; institutions, about 50 per cent. There are 15.8 million shares outstanding and no options.

Dividends not only amount to 25 per cent of cash flow, but have risen every year since Mr. Roy took over. They’re now $0.40 a share.

Overall, for folks who want both yield and growth, Mediagrif is a stock that’s certainly worth taking a look at.

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