A Texan business that refurbishes and resells used computers and printers will soon be in Australian hands after founder-led urban miner Close the Loop (ASX: CLG) announced a deal to buy ISP Tek Services LLC and Captive Trade Corporation for up to US$66 million ($99.7 million).
The acquisition is significantly larger than any other made to date by Melbourne-based Closed the Loop, which saw its revenues almost triple in the December half to $58.6 million while profits rose almost 500 per cent to $4 million - a performance underpinned by strong growth in packaging and resource recovery.
In the December half the group also introduced several new collection programs in cosmetics, storage solutions, eyeglasses, phone case covers and cookware, complementing its traditional imaging consumables business.
Now Close the Loop is set to make a splash in the business of refurbished electronics through the purchase of ISP Tek Services and its affiliated trading platform Captive Trade Corp for US$35 million ($52 million) in cash and US$11 million ($16.5 million) in CLG shares, as well as US$20 million ($30 million) in convertible notes and earn-outs based on performance.
The deal and future growth plans are backed by a heavily oversubscribed, no-discount $45 million institutional placement that has already taken place at 33cps, and US$52.5 million ($78.8 million) worth of loans and debt facilities with Chicago-based Pricoa Private Capital.
CLG shares are up 13.64 per cent at the time of writing at 37.5cps.
ISP Tek Services founders Sammy and Dania Saloum will become substantial shareholders of Close the Loop following the acquisition, joining a company whose CEO Joe Foster and COO Darren Brits were co-founders of O F Pack which merged with Close the Loop to start the ASX-listed entity with a combination of specialties in packaging and consumables, product development innovation and recovery systems for complex commodities to reduce the amounts of waste going to landfill.
"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," says Foster.
"This acquisition is expected to deliver approximately 100 per cent earnings per share accretion to the group on a historical annualised basis.
"ISP Tek Services is a Tier 1 full consumer electronics life-cycle management business with a keen focus to provide US-based remanufacturing capabilities for market-leading OEMs (original equipment manufacturers), which provides the Group with significant opportunities to expand in further regions around the world."
He clarifies the board does not expect to make any further acquisitions in the near future due to "our already strong global foothold on the circular economy".
As an HP remarketing partner and authorised distributor, as well as a third-party refurbisher (TPR) for Microsoft, Samsung, LG and other major manufacturers, ISP Tek's revenue stood at US$49 million ($73.5 million) for the 12 months to October 2022 with net profit after tax of US$13.7 million ($20.5 million) - a 28 per cent profit margin.
The US company also refurbishes high volumes of off-lease or previously-owned computers as well as inkjet, LaserJet and commercial printers. After recovery and refurbishment, products are then sold to the education, healthcare and private sectors, as well as a marketplace for direct-to-consumer sales.
"We are 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 1 manufacturers with a responsible and secure end-to-end solution to manage their product lifecycles closer to home," says ISP founder and CEO Sammy Saloum.
"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 service offering allows the Tier 1 manufacturers to deliver on their circularity pledge and remanufacturing targets."
Close the Loop in its pre-merger form was founded by circular economy pioneer Steve Morriss in 2000.
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