Pegasus Digital (NYSE:PGSS) has entered into a definitive agreement to combine with equipment manufacturer SCHMID at an enterprise value of $640 million.
Freudenstadt, Germany-based SCHMID makes silicon and glass components for the solar energy industry and electronics, including substrates for the broader technology space.
The combined company is expected to trade on the NYSE once the deal is completed in the fourth quarter of 2023.
Transaction Overview
Pegasus Digital has about $75.4 million in its current trust after seeing 68% of shares redeemed in an April extension vote and the parties have not yet announced any additional committed financing.
The sides have not yet released their merger documents or an investor presentation, but Pegasus Digital’s profile page will be updated once new information is made available.
SCHMID CEO and Chairman Christian Schmid and Anette Schmid are expected to continue to own a majority of the combined company’s equity and will continue to serve on its Board. They are to be joined by Pegasus Digital’s CEO and Chairman Sir Dr. Ralf Speth and CIO Dr. Stefan Berger.
Quick Takes: The SCHMID Group will celebrate its 160th birthday next year, having started as an iron foundry and mechanical factory in 1864.
Its CEO Christian Schmid is a part of the fifth generation of Schmids to run the enterprise, which expanded into different forms of machine manufacturing through the decades, adding a solar industry division in 2002.
Solar equipment now makes up a significant portion of SCHMID’s production portfolio. It makes the silicon wafers and processors and glass components that go into solar panels with proprietary machines and SCHMID projects the market for products within this particular subset to grow at a CAGR of 6% through 2026.
Although this $6.2 billion total market is the largest sector SCHMID is currently selling products into, the market for substrate equipment is growing faster. Substrates are the portions of advanced printed circuit boards that form interconnections between their various smaller components.
Generally made of copper, these plates are etched and milled in a wet process not completely unlike the constituent parts of a solar panel. SCHMID has the equipment to design and manufacture electronics for clients from end-to-end and it sees sales demand from technology companies for these products growing at a secular rate in the coming years.
Substrate production had a total addressable market of about $5 billion in 2022, and it projects this to grow at a CAGR of 38% through 2026. SCHMID notes in its press release that the company’s customers “include some of the largest, global blue-chip Tier 1 technology brands”, but does not name any there or on its website.
In fact, the company has so far not released any specific financial information on it, although it claims to generate “industry-leading EBITDA margins”.
On the whole, SCHMID cuts exactly the sort of profile that the market is likely hungry for in the current climate and also the sort of company that SPACs have frequently struggled to lasso. The SPAC is up about +0.5% on the deal news while its host exchange, the NYSE, is overall down about -1% in morning trading.
Being a stable, long-running family business with a history of profitability, the SCHMIDs of the world have frequently eschewed the SPAC option, and so it would only benefit from providing more financial texture with its initial wave of announcement materials.
But, this same long history as a family business may also bring with it a reflex towards keeping its cards close to the chest.
This is a common story among silicon wafer and substrate manufacturers with many major players remaining private to this day. But, Norwegian firm Elkem (OL:ELK) generated $891 million in operating income in the first quarter with a large portion of this revenue coming from carbon, silicon and glass products for the solar industry.
Interestingly, it reported softer sales specifically within this division to start the year, owing to overcapacity in China and other macroeconomic headwinds. Overall, as a producer of many base materials rather than finished products, it trades at a shallow margin of 0.6x revenue and 2x EBITDA.
Taiwan’s Kinsus (TW:3189) and Japan’s Ibiden (TYO:4062), meanwhile, are leading listed peers among substrate manufacturers. Kinsus trades at 1.1x revenue and 3.3x EBITDA, while Ibiden is now valued at 1.7x and 5.6x, respectively.
ADVISORS
- Company
- Gleiss Lutz and Fenwick & West are advising SCHMID as legal counsel.
- SPAC
- Solomon Partners Securities, LLC is serving as financial advisor to Pegasus Digital Mobility Acquisition Corp. on the transaction.
- Marshall & Stevens Transaction Advisory Services LLC is acting as the fairness opinion provider to the board of directors of Pegasus Digital Mobility Acquisition Corp.
- Clifford Chance is acting as U.S., German and international legal counsel to Pegasus
- Appleby is acting as Cayman counsel to Pegasus.
Berenson Acquisition Corp. I (BACA) Signs Non-Redemption Agreements Berenson (NASDAQ:WTMA) announced in an 8-K this morning that it has entered non-redemption agreements with third parties that will secure 655,715 shares from redemption. The filing did not note what incentive, if any, these investors received for agreeing not to redeem. The move comes as Berenson is...
Crixus BH3 Acquisition Company (NASDAQ: BHAC) announced in a filing this afternoon that it is postponing its extension vote to Friday, October 6, 2023 at 9:00 a.m ET. The meeting was originally to be held Friday, September 29, but presumably it has been moved to account for amendments to its proxy which was filed today...
Welsbach Technology Metals Acquisition Corp. (NASDAQ: WTMA) announced in an 8-K this afternoon that it is postponing its extension vote one day to 2 pm ET September 29. The SPAC would not be able to postpone it much further as its current transaction deadline falls on a Saturday the next day, September 30. At the...
Global Lights Acquisition Corp. (NASDAQ:GLAC) rolled out an S-1 on Friday, to become the 21st SPAC to file in 2023. This keeps the recent pace with two new SPACs filing to list in each of the past three months so far. Three out of the last four of those have also sought to raise $60...
Below is a daily summary of links to the latest SPAC news and rumors gathered across the web. Terran Orbital Closes 432.5 Million Public Offering Terran Orbital Corporation (NYSE: LLAP) (“Terran Orbital” or the “Company”), which combined with Tailwind Two in March 2022, today announced the closing of its previously announced public offering of 23,214,290...