The deal will provide Lime with approximately $1.9 million in cash, plus the assumption of $9.9 million in liabilities associated with various ongoing projects, offset by $6.3 million in assets transferred to PowerSecure. This makes the effective purchase price of the business approximately $5.5 million (not the $11.9 million I earlier reported). The deal should be good news for both Lime and PowerSecure shareholders.
From Lime Energy's Perspective
After nine months of worrying about misreported and potentially fictitious revenue, it's easy for shareholders to forget that Lime's strategy is to focus on its utility business and move away from more competitive ESCO services, where the company has less competitive advantage.
Although shareholders have not seen any financial data since Lime began the internal audit of its books last July, there have been numerous announcements of progress in its utility business. Just this year, Lime has announced:
- Exceeded their goal for delivering energy efficiency savings in National Grid's (NYSE:NGG) small business direct install program in upstate New York for the third consecutive year.
- Completed their 1,000th project in their implementation of direct install program as part of New Jersey's Clean Energy Program.
- Exceeded their goal in the first year of implementation of Central Hudson Gas & Electric's small and mid-sized business direct install program.
This progress in the utility businesses has not come without cost. Lime has had to turn to its board Chairman and other boardmembers to obtain working capital in the last year, even though they entered 2012 not expecting to need to raise additional funds before achieving profitability. Kiphart bought a one million shares at $2.55 a share and the board collectively lent the company $7.05 million in 2012, mostly in the form of convertible debt.
With the share price stuck in the $0.60 to $0.80 range, and likely to stay there until Lime is able to file audited financial statements, the sale of a non-core division should come as a relief to shareholders who have recently seen the value of their holdings diluted by the issuance of convertible notes. The $5.5 million purchase price and $1.9 million in cash should make a significant difference to a company with a market capitalization of less than $19 million. It should also allow Lime to focus its working capital on the growing utility business, and possibly repay some of the debt raised in 2012.
Given the lack of reliable financial information from Lime, it's impossible to know the current value of its ESCO business. On the other hand, Lime is unlikely to have been in a strong bargaining position, and from that alone we can expect PowerSecure received good value for its money.
With a $157 million market cap and $22.55 million in cash on its balance sheet, this deal will not be as significant to PowerSecure as it is to Lime. Nevertheless, the company says that the acquisition will increase EBIITDA and earnings per share in 2013. PowerSecure's lower cost of capital should enable PowerSecure to run the division more profitably than Lime has been able to.
PowerSecure's CEO, Sidney Hinton, also expects to achieve some synergies from the division. He said, "The addition of Lime Energy's proven ESCO business provides additional capabilities that complement our existing best-in-class energy efficiency offerings and opens new potential channels for our LED lighting, distributed generation and utility infrastructure solutions."
With this the sale of a non-core division raising apparently needed capital, Lime's shareholders should not have to suffer additional dilution until the company is able to file its delinquent financial statements. When that happens and dispels the cloud of uncertainty which has been hovering over the company, the share price should rise and Lime should be able to obtain any additional capital it needs on much more favorable terms.
PowerSecure shareholders, in turn, should benefit from the acquisition of a complementary business at what is likely to be a very reasonable price.
Disclosure: Long LIME
Disclaimer: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.