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Smith Electric Vehicles Revs for Acquisition, IPO

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Smith Electric Vehicles U.S., an electric truck and van maker based in Kansas City, Mo. and backed by $32 million in stimulus grants, has become the great green hope for its loss-making parent company, the UK’s Tanfield Group. Tanfield has decided against divesting itself from Smith: an option that was on the table earlier this year, before Smith saw its government funding more than tripled and jumped into the limelight with a visit from President Obama.

This week, Tanfield — which makes aerial work platforms and electric vehicles for the commercial sector — reported a return to growth in its electric vehicle division, driven mainly by “new markets outside of the UK.” This comes amid declining revenue and shrinking cash reserves for a company hit hard by the credit crunch and global slump in the construction sector. Tanfield notes that it’s “reviewing alternative ways to fund the continuing cash outflow.” If and when a new plan goes through for Smith U.S. to buy Tanfield’s British electric vehicle unit, Smith Electric Vehicles UK (SEV UK), and launch an initial public offering, Tanfield expects to generate cash from the deal and get a kick-start to improve its finances.

Tanfield’s operating losses amounted to £9.8 million [$15.2 million USD) in the six months ended June 30, down from £11 million in the same period in 2009. “Reflecting the adverse trading conditions in the period,” writes Tanfield, its net cash balance dropped £3.2 million to £2.2 million during the first half of this year.

Negotiations for the proposed consolidation of Tanfield’s electric vehicle units have already dragged on for most of the year, however. Smith U.S. announced a conditional offer in March to buy Tanfield’s entire 49-percent stake in the Kansas City company and also acquire SEV UK. The idea, Smith U.S. CEO Bryan Hansel told us at the time, was to create a nimble electric vehicle maker with global reach. But under a revised agreement, Smith U.S. would still buy SEV UK, with Tanfield hanging onto a “significant stake” in this potential powerhouse of the electric fleet market.
President Obama at Smith U.S. factory in Kansas City, Mo.

Back in March, Tanfield agreed not to consider any bids other than Smith’s for 120 days, and Hansel told us at the time that he expected the deal to close in that window, by July at the latest. But when July rolled around, a deal had yet to be struck and talks continued. On July 9, the day after President Obama visited Smith’s factory in Kansas City (to tout how investments from the stimulus package have helped to create jobs, speed economic recovery and spur growth in the clean energy sector), Tanfield announced that it had agreed to extend the exclusivity period by another 60 days.

The extra time appears to have been fruitful. Last week, Tanfield notified shareholders of a non-binding agreement to consolidate Smith U.S. and SEV UK and retain a stake in the combined venture. Hansel told us in an email that timing has yet to be determined, but 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.”

Tanfield, meanwhile, has high hopes for the U.S. commercial electric vehicle market. “It is very likely that future growth in the U.S. will be significantly more rapid than in the European market,” the company noted in its earnings statement Wednesday, “due to number of Federal and state initiatives to drive demand and application.”

For example, DOE-funded subsidies for Smith customers who participate in a demonstration program and allow data collection, explained Hansel, help to lower one of the major barriers to adoption: payback time. “The post-grant pricing simply shortens the time period it takes customers to receive a return on their initial investments,” he said.

To help fund a major expansion and meet demand in a market where incentives are accelerating growth, Smith U.S. has its eye on the public markets. The company’s offer to Tanfield earlier this year stipulated that Tanfield would get a certain share of the new, combined Smith Electric Vehicles if it managed to go public before September 2015.

But while Hansel told us on Thursday that Smith has not locked into a particular course of action (he said the company “continues to review all its options for future financing and growth”), Tanfield’s recent notice to shareholders reveals that Smith U.S. is considering a public offering on the NASDAQ, possibly as early as the first half of 2011. So as Hansel told us in March, the company may gun for that IPO “sooner rather than later.”

4 Responses to “Smith Electric Vehicles Revs for Acquisition, IPO”

  1. So, have I got this right?
    SEV UK shareholders are exchanging all the intellectual property, all the assets and also their 49% stake in Smith US, for a measly 1% royalty of vehicles sold?

    Sounds like they’re being swindled!