It is usually complicated for market participants to find listed companies that provide financial as well as corporate advisory. It makes sense. Thanks to fees received from advising clients, the finance people make quite a bit of money, and obviously don’t want to share their astonishing salaries with anybody.
In some rare occasions, we can find small advisory companies that are starting up a new business and need some money. If they are listed companies, they usually represent an exciting market opportunity.
If you like what you read, you will like our next business profile. It is called Daniels Corporate Advisory Co Inc. (OTCMKTS:DCAC), a corporate strategy firm headquartered in New York.
This company has drawn our attention after its stock commenced to move one-year record volume. We could see in January that more than one billion shares changed hands some days.
Check the following stock chart and form your opinion before we provide ours:
The business was created in 2002 and is headquartered in Forest Hills, New York. It is a corporate strategy firm focused on the needs of small, growing public and private companies. The services provided include securing growth capital, LBO financing, and strategic advisory in joint ventures, marketing opportunities, partnerships, and potential acquisitions.
How does the company operate with clients?
In order to be able to receive financing from the sale of DCAC equity in the open market, the clients usually become subsidiaries of DCAC. Daniels’ management team works with the client. Once it generates sufficient revenues and can operate independently, it is spun-off. According to the company materials, Daniels can complete the listing process on a major US Stock Exchange like the NASDAQ in 14 to 24 months.
It is quite an interesting business model which cannot be possible without an experienced team. We need to highlight the business profile of Arthur D. Viola, who has been the Chairman, President, Chief Executive Officer, and Director since September 2002. The most exciting features of his career in business are briefly described here:
- Involved in the M&A industry from the 80s
- Has worked for large institutions like Bank of America, Gulf & Western, Crane Co., and Citibank
- In 1981, Mr. Viola founded The Viola Group, Inc., a New York-based public company, which acquired, and managed private businesses.
- From 1990 to the present, Mr. Viola has served as senior partner of Daniels Corporate Advisory Co.
- MBA from Pace University
The year 2017 – Hiring new Personnel and focusing on Vertical Acquisitions
We went through the company materials and found out that the company seems more concerned in creating new deals and contacting new clients rather than reporting to the shareholders. It is entirely a usual practice for small listed companies. However, it should not surprise. We will only need to exercise additional care while researching this business.
The developments released in 2017 are briefly described below.
First of all, we could read that two new individuals joined the team; Mr. Harry Orfanos, the new CEO, and Mr. Bruce Blechman, the new CFO.
Check the profile of the new CEO:
- Co-founded Magellan Global Fund
- Vice President of Capital Markets with Cornell Capital Partners, a $1 billion New Jersey-based PIPE fund
- Director of Private Placements at Sepulveda & Smith
- Equity Sales Trader with Santander Investment Securities in New York
- B.S. in Finance from New York University.
At the same time, the business profile of the CFO is also attractive:
- Author of The Secret to Getting Money, Guerrilla Financing
- Articles about him have appeared in USA Today, The Los Angeles Times, and other national publications.
- Top quarter of his class at the Wharton School of Business at The University of Pennsylvania
- Adjunct Professor at the Wharton Business Plan Program
Mr. Viola noted that he has health issues and would remain as Chairman of Daniels.
What’s our take?
We believe that many things will change in the year 2018, as the new team commences to work together. Additionally, the company seems to be in the process of transformation, and a lot of new announcements could be released. In sum, the share price could move quite a bit, so we believe that monitoring this name will be interesting.
Also, on August 10, 2017, the company released two significant announcements. Firstly, DCAC had decided to cancel its planned reverse split. A reverse split increases the share price without enhancing shareholder value, so the market tends to push down the share price after it. Although the market did not celebrate the news, we know that it was really good for stockholders. Also, the company noted that it is working on releasing new financial statements, which was also a good initiative.
What did create the increase in volume?
On January 10, 2017, DCAC released that the business model had been restructured. The company is now targeting signing vertical acquisitions; the company will acquire firms via existing and newly-created subsidiaries.
Is it a game changer?
Not, really. But, it will limit dilution, and less cost of capital for expansion will be needed. It is explained in more detail in the following paragraph:
“This approach will create the avenues to raise capital while lowering the overall cost through the use of multiple subsidiary stocks in the DCAC portfolio. It will also allow DCAC (the Parent) to arrange a major transaction for itself, one that can be financed through private equity firms. This type of financing is longer term in nature ( financing for five to seven years) and the firms that provide it also provide senior and operating management support if called upon to do so.” Source
There is more.
The Chairman had decided to convert his salary (now $685,000) to an aged Convertible Preferred Note. It is obviously very good for the financial shape of DCAC. These were his words:
“I am all in and hope the shareholder base will be as well, by continuing to be patience and giving us the addition time necessary to make DCAC a major success story. I am not getting any younger, this will happen as fast as humanly possible and be for the benefit of all the shareholders.” Source
Currently trading with a market cap of $1 million, DCAC is an exciting story among small caps. With $0.01 million in cash, $0.05 million in assets and $1.3 million in total current liabilities, the company will soon have to recapitalize its balance sheet. The good announcements that we noted in this article will help in this regard.
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Disclosure: We have no position in DCAC and have not been compensated for this article.
Image courtesy of Maryland GovPics via Flickr