Monday 3 January 2011

Licensee buys Licensor in advance of IPO

New Year’s Day finally saw the acquisition of Smith Electric Vehicles UK by its US counterpart and licensee, Smith Electric Vehicles US (SEVUS). Founded in the 1920’s, Smith UK is the world’s largest manufacturer of commercial electric vehicles, producing the world’s largest battery powered truck, the Newton.

The acquisition offer was originally made in March 2010, a press release explaining that “the transaction includes the purchase of all of the Smith US common stock currently held by Tanfield (Smith UK’s parent company), as well as the License Agreement by and between Tanfield and Smith US, and the intellectual property necessary to allow the combined businesses to operate globally.” According to the FT, SEVUS was offering £37m plus a £33.3 m stake in the enlarged company if it was able to float before September 2015.

However, by the time Heads of Terms were signed in August 2010, a press release indicated that Tanfield “expected to retain a significant interest in the combined entity and share in its future growth and opportunity”, noting that “SEVUS's plans include a possible public offering of its equity securities on the US NASDAQ exchange, which could be as early as the first half of 2011.” According to GigaOM, quoting SEVUS CEO Bryan Hansel, “the revised agreement calls for Smith U.S. to buy an agreement under which Tanfield licenses its electric vehicle technology to Smith for a 1-percent-per-vehicle royalty fee, as well as all the assets of SEV UK and the intellectual property necessary to allow the combined businesses to operate globally.”

The final deal, according to a December press release, gives Tanfield $15m, split into twenty monthly payments, and a 49% holding in the enlarged SEVUS business. Thus Tanfield would appear to have sacrificed jam today in expectation of much more jam on the floatation of SEVUS in 2011. But are the stock markets ready for another Electric Vehicle IPO? GigaOM notes the successful IPO by Tesla Motors in 2010 but observes that:

aside from their shared focus on electric vehicles, Smith US and Tesla could hardly be more different. Tesla has its carefully crafted high-profile, glitzy brand, consisting of luxury vehicles priced for a sliver of wealthy consumers (although lower-priced models are set to launch in the coming years). Smith U.S., on the other hand, has kept a low profile building electric trucks for unglamorous commercial fleets.”

It will be interesting to see how the markets decide.

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