Why Dye & Durham (TSX:DND) Stock Popped 20% Wednesday

Dye & Durham (TSX: DND) today announced its second quality acquisition in less than a month, fueling the rally in its stock.

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What happened?

The shares of Dye & Durham (TSX:DND) staged a sharp rally today after it revealed the details of its second acquisition in less than a month. This morning, DND stock reached its highest level since February 2021 by posting an intraday high of $50.49 per share — up more than 20% from yesterday’s closing price. While the stock retraced some of its gains later during the session, it was still trading with 15% advances at the time of writing.

So what?

Dye & Durham is a Toronto-based software firm with its main focus on providing various technological solutions to its clients, helping them achieve better efficiency by automating workflows. It currently has a market cap of about $3 billion.

On Wednesday morning, the company announced its intentions to buy the Australia-based Link Administration Holdings in a deal worth $3.2 billion. This deal amount translates to about A$5.50 for Link Administration’s each common share, which is nearly 15% higher from its Tuesday’s closing price.

Dye & Durham expects this deal to help it expand its business in new markets. While commenting on the deal, its CEO Matthew Proud called it “a transformational acquisition.” The deal “represents a major step forward in our ‘Build to a Billion’ strategy to achieve CA$1 billion of adjusted EBITDA,” he added.

The news about the deal and management’s optimistic comments seemingly boosted investors’ confidence, fueling a rally in DND stock today.

Now what?

As I noted at the start of this article, this is the second key acquisition that Dye & Durham has announced in less than a month. Previously on December 6, the company announced the acquisition of TELUS’s financial solutions business and certain assets for $500 million. Back then, DND stock surged by 21% in the following couple of days.

While Dye & Durham has consistently been missing Street analysts’ earnings estimates for the last several quarters, the trend in its sales growth continues to be much better than expected. Its new quality acquisitions are likely to help the company expand its business fast and accelerate its sales growth rate further in the coming years. That’s why long-term investors may consider buying DND stock, as it still trades with 7% year-to-date losses, despite these positive factors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends TELUS CORPORATION. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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