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Merger in Energy Efficiency Sector Creates Strategic Opportunities

Streetwise Reports, Streetwise Reports
0 Comments| June 19, 2018

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With the rising cost of energy and greater interest in reducing CO2 emissions, retrofitting existing equipment has gained momentum, and an impending merger can provide a more comprehensive approach.

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A number of companies have arisen to service the market, including Smartcool Systems Inc. (SSC:TSX.; SSCFF:OTC; R3W:Frankfurt) and Total Energy Concepts Inc. Smartcool, a rapidly growing CA$11 million market cap enterprise, provides products that increase the energy efficiency of air conditioning, refrigeration and heat pump systems. Total Energy Concepts, a privately held firm, offers a holistic approach to optimize energy use.

Smartcool and Total Energy Concepts announced a strategic merger in March and on June 19 reported they have amended the letter of agreement. The amendment fixes the number of shares of the transaction. In exchange for 100% of Total Energy Concepts, Smartcool will provide 18 million common shares of Smartcool, 5 million non-transferable share purchase warrants and $150,000 in cash, paid out over a one-year period. Each warrant is for one common share at the closing price and is good for five years.

"Smartcool has some momentum to continue to grow revenue" - Ron Struthers, Struthers Resource Stock Report

Minnesota-based Total Energy Concepts, which has been in business since 2003, has been a distributor of Smartcool products and has also developed proprietary products. According to the company, these products include "Power Factor Correction equipment (PFC), Voltage Conditioning Units (VCU) and Intelligent Generator Optimization Systems (IGOS). In addition to these proprietary products, TEC markets a host of energy efficiency products to provide clients a holistic approach to energy savings in an effort to help clients reduce energy consumption and save money."

Ted Konyi, CEO of Smartcool, and Damian Smith, CEO of Total Energy Concepts, believe that "the synergies from a strategic merger of these two companies present a very attractive growth opportunity."

"The combination of our two company's sales and distributor networks, as well as the complementary products that we can offer as a comprehensive solution are key to growth in new sales opportunities, both domestically as well as internationally," Smith stated.

The two companies noted that they "are endeavoring to complete this transaction within the next few weeks, subject to stock exchange approval."

Smartcool noted that it "has substantially completed its due diligence and can report that TEC's financial statements for the year ended December 31, 2017 show net income of (US$147,251) (CDN$194,371) on 2017 revenues of US$2,012,278 (CDN$2,656,207). The parties have agreed to fix an 'effective date' for closing of April 1, 2018."

Smartcool is rapidly growing. First quarter 2018 results announced on June 1 show revenue growth quarter over quarter of 265%, and a 33% reduction in net loss, "due primarily to an increase in gross sales and higher gross margins."

Smartcool's products allow air conditioners, refrigeration equipment and heat pumps to function more efficiently by reducing the energy consumption of their compressors by as much as 40%.

Smartcool's clients include a major Premier League football stadium as well as a golf club in the UK, McDonald's branches in Riyadh, and SSE's Data Centre in the UK. A long list of users including Burger King, Dell Computers, Tesco, General Electric, Hilton, Radisson, Mercedes Benz, Jaguar Motorcars, United Utilities, Telefonica and Emcor have benefitted from its technology.

Late last year, Smartcool announced the formation of a division to market its ECOhome product, which reduces the energy consumption of air conditioning systems, to residential customers. The company has teamed up with Mike Holmes, the host of HGTV's "Holmes on Homes" to market ECOhome to consumers in Sunbelt states in the U.S.

Industry watchers have Smartcool in their sights. Ron Struthers wrote on June 4 in Struthers Resource Stock Report that he believes Smartcool has "some momentum to continue to grow revenue but there are two short-term factors we need to watch that could make a big impact for 2018:

Early March SSC announced and LOI to acquire Total Energy Concepts (TEC), based in the U.S. state of Minnesota. TEC is a distributor of Smartcool products but more importantly has its own line of energy efficient products and has been in business since 2003. SSC needs to close on this acquisition and then we could see the stock react better as it would add significantly to revenues.

The second catalyst will be Smartcool's agreement with Mike Holmes and The Holmes Group to partner and promote the company's ECOHome products internationally. They are first focused in the southern U.S. states and if sales get traction for this new home product, it could add significantly to revenues."

Technical analyst Clive Maund wrote on on April 15 when shares were trading at CA$0.06 that Smartcool "continues to shape up well, and looks even more attractive than when we last looked at it on 14th March. . .Smartcool is rated an immediate strong buy again here." Smartcool's shares are currently trading at CA$0.05.

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