TD Flash NoteEventXebec announced the acquisition of Tennessee-based Nortec.
Impact: POSITIVE
Details: Xebec announced the acquisition of Nortekbelair Corporation ('Nortec') for$8.5 million, including $2.6 million in cash and the issuance of 735,838 commonshares at $4.385/share. Xebec is acquiring a U.S. manufacturing footprint includinga 18,500 sqft facility that will be configured to focus on compressed air dryers, naturalgas dryers, and hydrogen dryers. While Nortec generated $4.5 million in revenuein 2020, we believe that the rational for this acquisition was driven by the needfor manufacturing capacity for its existing operations and view Nortec's historicalrevenue profile as a secondary factor. Total consideration is subject to performance-based holdbacks. Nortec's principal, Mike Zarif, Ph.D, will remain with Nortec afterthe acquisition.TD View: In our view, this acquisition is a product of Xebec's focus on increasingthe profitability of its operations, as the acquisition facilitates the streamlining ofits primary manufacturing facility in Blainville, Quebec. Going forward, we expectthat its Quebec facility will have more capacity for RNG-focused growth and will bereconfigured to focus on efficiently manufacturing its suite of standardized RNG-focused product portfolio. Conversely, its facility in Tennessee will focus on themanufacture of compressed air and gas dryers. Historically, the manufacturing of allof these products were co-mingled. Finally, while the Tennessee facility will primarilymanufacture legacy industrial products, these products are components of both RNGand hydrogen purification infrastructure and, as a result, the Tennessee facility willfacilitate U.S. growth for customers that have a 'Buy American' mandate
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Will XBC be able to offload the mfg of compressed air and gas dryers from Blainville to Nortec and then use the freed capacity to expand BGX Biostream mfg?