Decisive Dividend: An Acquisition-Driven Business Worth Considering

By Will Ashworth

• Decisive Dividend is building Canada’s next industrial conglomerates. 

• Its latest acquisition provides hog farmers with the technology necessary to protect their investments.

• What’s not to like about this free cash flow positive serial acquirer? 

I can't remember how I came across Decisive Dividend (TSXV:DE, OTCMKTS:DEDVF), but I’m glad I did. It appears to have an exciting future ahead of it. 

The Kelowna, BC-based company acquires manufacturing businesses and integrates them under the Decisive Dividend umbrella. Founded in 2012, it has made 11 acquisitions, with the most recent occurring in July. 

My biggest concern with its business model is whether it can continue to acquire businesses in this higher interest-rate environment and still grow its bottom line. 

The DE stock price is up more than 50% year to date.

But other than that, it’s an intriguing microcap, at $144.6 million (all figures in Canadian dollars), trading at a price-to-earnings ratio of 20.3, and paying a dividend that currently yields 6.3% after a boost in June.

Making Pigs Comfortable

The company paid $21.2 million for Innovative Heating Technologies (IHT), a Manitoba firm that manufactures animal welfare products for farmers and their animals. Its most popular product is the Hog Hearth energy-efficient farrowing heat mat that provides sows with the comfort they need to deliver a litter of pigs successfully.

I’m not about to pretend that I’m an expert in farming; far from it. However, I am an animal lover, so anything I see that provides comfort and humane animal treatment will interest me. 

IHT is also launching a line of cooling mats intended to lower the sows’ respiration rate and internal temperature. Given the world’s increasing temperatures, the product makes sense. Designed at Indiana’s Purdue University, the cooling pads should be on the market in the spring. 

Of the four acquisitions made so far this year, IHT was Decisive’s biggest. Combined, the four businesses acquired had trailing 12-month sales of $27.5 million as of Sept. 30. Their overall gross profit margin was 55%, with $7.5 million in net profits. 

The acquisitions raised Decisive’s gross profit margin by 300 basis points, to 41%, while doubling its profits.  

Other ‘Hot’ Businesses

Earlier this week, Decisive posted Q3 2023 revenue of $37.7 million, 45.6% higher than Q3 2022, with a 35% increase in net profits to $2.7 million. On a per-share basis, its earnings fell by 6.7% due to more shares outstanding. Still, at 14 cents, they beat the 12 cents consensus.

It has two operating segments: Finished Products (62% of sales) and Component Manufacturing (38%). 

In the Finished Products segment, it owns Blaze King, a manufacturer of wood-burning stoves and gas fireplace inserts that it acquired in February 2015. It was Decisive’s first acquisition. It sells its products across Canada, the U.S., and New Zealand. 

In October 2022, it acquired ACR Heat Products, a U.K.-based manufacturer of woodburning and electric stoves sold primarily in its home market, providing the company with a global foothold in the woodstove market. It paid $8.3 million for the company. 

Blaze King and ACR are two of six companies operating in the segment. IHT is one of the other four. 

Its Component Manufacturing segment consists of five companies, two of which (Micon and Procore) were acquired in April 2023. The division’s profitability isn’t as high as the Finished Products business -- 35% gross margin vs. 47% -- but all five are growing their top-line sales.

The Interest Question

As I said earlier, my biggest concern is the higher interest rate environment we’re in for the foreseeable future. That’s going to suck more money out of the business in quarters ahead. 

As of Nov. 6, Decisive had $45.5 million in long-term debt. The most significant chunk ($28 million) is a non-amortizing term loan at a fixed rate of 6.9% with no principal payments required for the three-year term. 

As part of its credit agreement, its maximum total funded debt can’t exceed 4x adjusted EBITDA. As of Sept. 30, it was 2.1x adjusted EBITDA of $32.2 million. With $13.7 million in free cash flow, it has plenty to pay down debt in the future and continue to pay its quarterly dividend of $0.12 a share. 

Still to be Tested

While I will put Decisive on my watchlist, I think it’s been fortunate to grow its business during an extended period of low-interest rates combined with a healthy economy, etc. It’s yet to be tested under a full-blown recession. That will reveal whether the emperor is wearing no clothes. 

In the meantime, I will continue to update readers about its progress in becoming one of Canada’s premier industrial conglomerates.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. None of the above should be construed as investment or financial advice. Investing is inherently risky. Please perform your own due diligence.

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