Recycled products producer Close the Loop Group (ASX:CLG) has entered into an agreement to acquire US-based refurbished electronic business ISP and Capacitive Trade Corp for a total consideration of up to US$66 million.
The acquisition will provide the company with ‘significant’ consumer and commercial electronics remanufacturing and technological capabilities, a ‘considerable’ US market sales and trading presence, and extensive distribution networks. It will also reuse capabilities to the company’s portfolio and further strengthen its service offering to original equipment manufacturers (OEMs), supporting sustainability and circular economy initiatives.
Following the completion of the transactions, ISP Tek Services founders Sammy and Dania Saloum will be ‘substantial’ shareholders of Close the Loop. They will continue to manage the ISP Tek Services business and assist the existing Close the Loop management team with the global expansion of ISP Tek Services.
“The acquisition of ISP Tek Services delivers on our strategy of focusing on resource recovery, particularly in the world’s largest capital market, North America”
As part of the agreement, Close the Loop Group will pay US$35 million in cash upon closure of the transaction, which is expected to be on or around 30 April 2023.
The company will also issue US$11 million in Close the Loop Group shares which will be issued at settlement based on the 30-day volume weighted average price (VWAP)
The agreement will also see a 3 year, 4% interest bearing convertible note of US$7.5M that can be converted into Close the Loop Group shares at a rate of US$0.74 or repaid in cash at the discretion of the vendor at the expiry of the note term.
A US$7.5 million convertible note that can be converted into Close the Loop shares at the same rate as the aforementioned convertible note or repaid in cash at the discretion of the purchaser at any time during the note term.
As part of the agreement, there will be an earnout of up to US$55 million if 2023 earnings before interest, taxes, depreciation, and amortisation (EBITDA) exceeds US$12 million, with an additional US$5 million committed to be paid within 5 working days of the audited financial report being published.
Commenting on the agreement, Close the Loop Group Chief Executive Officer (CEO) Joe Foster said: “The acquisition of ISP Tek Services delivers on our strategy of focusing on resource recovery, particularly in the world’s largest capital market, North America. This acquisition is expected to deliver approximately 100% earnings per share accretion to the group on a historical annualised basis.
ISP Tek Services is a tier one full consumer electronics life-cycle management business with a keen focus to provide US-based manufacturing capabilities for market-leading OEMs, which provides the Group with significant opportunities to expand in further regions around the world. We do not, however, expect to make any further acquisitions in the near term due to our already strong global foothold on the circular economy.”
ISP Tek Services Founder and CEO Sammy Saloum says the company is excited about the opportunities that the combined Group can deliver in the remanufacturing space globally.
“With our complementary service offerings, the group can provide tier one manufacturers with a responsible and secure end-to-end solution to manage their product lifecycles closer to home. Considering the chances of supply-chain instability and due to the sensitivity of data security of enterprise, corporate, and consumer devices, bringing returns refurbishment closer to the original point of sale is a high-priority for OEMs.
The combined services offering allows the tier one manufacturers to deliver on their circulatory pledge and remanufacturing targets.”
Close the Loop Group reports it has completed a $45m placement of new fully paid ordinary shares to sophisticated and institutional investors to help fund the ISP Tek Services acquisition.
The placement is being undertaken in 2 tranches, and in total, it will involve the issue of 136.36 million new shares at an issue price of $0.33 per new share.
The first tranche will comprise the issue of 80 million new shares to raise about $26.4 million, and new shares under this tranche will be issued on 23 March 2023.
The second tranche will comprise the issue of a further 56.36 million new shares to raise about $18.6 million, and new shares under this tranche are subject to shareholder approval which will be sought in a general meeting on 21 April 2023. If approved by shareholders, the new shares under the second tranche will be issued on or around 28 April 2023.
Aitken Mount Capital Partners and Shaw and Partners acted as Joint Lead Managers of the placement.
Close the Loop Group creates ‘innovative’ products and packaging that includes recyclable and made-from recycled content, as well as collect, sort, reclaim, and reuse resources that would otherwise go to landfill. The company recovers print consumables, eyewear, cosmetics, phone cases, and even reuses toner and post-consumer soft plastics for an asphalt additive.