NowVertical Group

Quick follow-up on $SBBC

For my first investment journal, I wrote about a 3x arbitrage play in the CPG space—Simply Better Brands Corp. Almost a month later, the stock is down 5% along with the market due to Trump’s Tariffs. Although SBBC is a Canadian company, TRUBAR is manufactured in the US by third-party co-packers. Tariffs could impact the protein bar’s margins if prices for ingredients sourced abroad increase. We’ll see how this plays out, we’re still long SBBC.

Intro

For my second journal, I’m writing about a very different opportunity: a $25M dollar microcap trading at a 50% discount to anticipated annual revenue. 

NowVertical Group Inc.

$NOW | $NOWVF 

“NowVertical is a vertical intelligence (“VI”) company that delivers industry-specific data, technology, and AI applications to private and public customers globally. Its proprietary solutions service small, medium and large organizations to transform their data, technology and AI investments into Vertically Intelligent ones. This enables our customers to accelerate their time to value, minimize risk and unlock transformative value for their modern enterprise.” - Q3 report

The key to understanding this business, and where it’s going, lies in a greater shift taking place in tech and the corporate world today. 

Modern enterprises collect and sit on massive troves of data. This was greatly enabled by the transition to cloud over the past decade. Now with LLMs (Generative AI), we’re able to take those huge troves of data and quickly transform it, make sense of it, and build AI models and tools on top of it. This is a HUGE value unlock—allowing corporations to quickly and easily leverage their data to improve decision-making and operations at every level throughout the org. 

This concept could be described as what NowVertical calls, “Vertical Intelligence (VI).” However, there many labels with different nuances and different terminologies used at various points in the process. In my opinion, the best way to describe NowVertical’s business model is: tech-enabled services.

The most famous exemplar of this business model is the market’s favorite gravity-defying stock, Palantir. NowVertical is by no means the next Palantir, but it operates under a similar value proposition:

1. Palantir: Enabling organizations to make sense of complex data and solve intricate problems through its data-driven platform.

2. NowVertical: We transform data into business value with AI, fast.

Palantir’s solutions are a suite of complex products and its own operating system, while NowVertical’s solutions are bespoke data analytics paired with proprietary software and reselling third-party software.

The takeaway: Tech-enabled services are critical for the next generation of enterprise that will be guided by AI-driven decision-making. 

NowVertical competes with the top consulting firms (the McKinseys and Deloittes of the world) to sell customers these AI services.

The Company’s Origins

NowVertical Group was founded in 2020 by Daren Trousdell. Although he’s no longer involved in day-to-day operations, he still owns ~30% of company. Trousdell focused on strategical growth by acquiring small data analytics companies around the globe. During his tenure as CEO, he acquired 12 businesses across 5 continents, growing revenue to a peak $51.7M dollars in 2023.

I’m not exactly sure why Trousdell left the company, but I do find his story particularly interesting… a guy ventures out to public markets, raises $20M in capital to consolidate a fragmented space of data analytics firms into a global hold co. This is starkly different from the Silicon Valley, venture-backed startup route you’d expect for this kind of business. Then again, tech-enabled services historically have been seen as consulting, not SaaS. 

Anyways, this leads us to… 

NowVertical Today

• New CEO leading a strategic turnaround

• Plans to fully integrate the portfolio businesses under the “One Brand, One Business” initiative 

• Cross-sell their services to existing and new clients 

• FY25 Goal: organic growth to $50M revenue run rate and $10M EBITDA (USD)

• Aiming for “best-in-class“ 20% EBITDA margins

In Q1 2024, the board appointed Sandeep Mendiratta as CEO. Mendiratta co-founded and ran Acrotrend, a London-based data analytics firm that was acquired by NowVertical in 2023. 

This is a favorable aspect of NowVertical, due to its past acquisition spree, the company is embedded with entrepreneurs. Mendiratta sees this too and empowers the portfolio founders to lead their local operations so he can focus the larger vision, “One Brand, One Business”—organic growth by cross-selling services to their client base. 

Before the promotion, Mendiratta presented this idea to the board. They must have been impressed because they promptly elected him CEO after.

Since then, Mendiratta has made some significant changes:

• Sold the Alligent Defense business, yielding $12M in cash used to clear $3.8M of debt from the balance sheet

• 27% organic revenue growth (adjusting for Alligent divesture)

• Increased his ownership to ~11.8%

• Debt settlement agreements, reducing an estimated $5.4M in liabilities

Management has gone through a series of debt settlements with the portfolio founders. They’re exchanging future payments related to the acquisition costs and converting those liabilities into shares (ownership) in NowVertical. Although this is dilutive in nature, it’s a smart move because it reduces the company’s debt burden while increasing skin in the game for the portfolio founders.

What we need as investors

NowVertical is up 50% over the past year and some 333% since its all-time low last October. This goes to show how important it is to be early to these turnaround situations.

As investors, we need management to successfully continue restructuring and implementing the “One Brand, One Business” vision. 

If management can achieve their desired best-in-class 20% EBITDA margin in 2025, that would provide grounds for consistent positive earnings and cash flows—positioning it as an attractive investment to the broader market.

In an interview with Excess Returns, Ian Cassel describes some characteristics for landing a multi-bagger:

1. Overqualified management team in a company that has not yet unlocked the growth engine.

2. Multiple expansion through revenue and earnings growth. 

   1. For example, a $10M dollar company with $500k earnings can grow to $20M with $3M in earnings—that’s a 5-bagger.

3. To do all of the above without diluting shareholders… this last part is key.

Using this simple framework, NowVertical checks the first two boxes, it’s the third that worries me. 

Dilution Risk

We already covered how management is converting acquisition liabilities into new equity for the portfolio founders. The bigger concern is raising capital for future growth. In a recent interview with ValueHunt, Mendiratta explains his thoughts on future capital raises. He mentions that when he first became CEO, lenders wouldn’t even meet for a coffee because the balance sheet was in such a bad place. Since then the situation has completely changed, giving them the ability to raise debt rather than equity. 

Historically, NowVertical has issued equity to fund acquisitions. While M&A remains a core part of their DNA, Mediratta confirmed it’s not a near-term priority. The focus is on proving their ability to generate sustainable cash flows. Once they achieve that, we may see NowVertical return to its roots—expanding through strategic roll-ups of data analytics firms.

Pattern Recognition: Small, Geographic Acquisitions Providing Organic Growth via Cross-Selling

Whit Huguley, in his most recent letter, explains his thesis on Innovative Food Holdings (IVFH), a company consolidating the fragmented space of niche food distribution services. In this example, IVFH acquires small local distributors and uses them to build up a nationwide catalog of products. This allows for a Chicago-based distributor to go from offering only regional products to selling items from all across the nation—simply by joining the IVFH portfolio. This simple hack has doubled revenue for their local providers, seemingly overnight. 

I see a strong parallel here with NowVertical. In this case, it’s about cross-selling data analytics, not pork roast.

Using the new “One Brand, One Business” network, NowVertical operating in LATAM can solve a customer retention problem for Nike and then go to North America or MENA and say, ‘hey we just solved this issue for Nike in LATAM, we can help you do the same for your business in [whatever geography].‘

I believe this approach is the key to unlocking the growth engine that’s hiding in plain sight… We just need to see proof of it working!

Before I wrap up, I want to drop this screenshot listing some of NowVertical’s customers below.

It’s quite a marvel that you can find a company servicing this level of clientele at only a $25M dollar valuation.

Closing thoughts

In this journal, I mainly focus on the story at hand and using mental models to help me make sense of it all. This journal lacks in a rigorous understanding of the financials and balance sheet. In some ways, thou shall not use Excel. In other ways, as an investor, you need to know everything about the business: inside-out. 

I started a small initial position in NowVertical based on this current analysis. However, I need to spend more time in the trenches, digging into the numbers, before I would have the confidence to take a full sized position.

While writing this journal, I came across Financial Skeptical’s analysis on the stock, which provides a detailed breakdown of NowVertical’s dilution risk and valuation.
It’s a great read.

My goal is to produce at least 24 journal entries on microcap stocks this year, averaging 2 per month (so far, I’m behind). If you’d like to keep up with me on this journey, please subscribe and reach out on X: @source_result.

Disclaimer: This content is for informational and educational purposes only and is not tailored to your personal financial situation. It should not be considered investment advice or a guarantee of returns. Before making any investment decisions, consult with a qualified financial advisor to assess whether an investment aligns with your personal goals and risk tolerance.

The information presented is sourced from materials believed to be reliable; however, accuracy cannot be guaranteed and errors may be present. Always conduct your own due diligence. The views expressed are solely those of the author and may change without notice.