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CUI Global Inc

CUI Global to transform into larger energy- and technology-services company

Snapshot

CUI plans to purchase four privately held companies that provide services to the oil & gas, wireless telecommunications and utility industries and combine its subsidiaries with them to create a whole new company

energy

Quick facts: CUI Global Inc

Price: $0.71

Market: NASDAQ
Market Cap: $20.36 m
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  • Oregon-based energy- and technology-services company operates five subsidiaries

  • CUI plans to buy and combine itself with four privately held companies serving the oil & gas, wireless telecommunications and utility industries

  • New company would have annual revenues of about $350 million and be lead by Jim O’Neill, formerly of Quanta Services

  • Current CUI shareholders will own about 15% of the enlarged new company, while shareholders of the four target businesses will own 85%


CUI Global Inc (NASDAQ:CUI) is an Oregon-based energy- and technology-services company that operates five subsidiaries. Founded in 1998, CUI breaks its business into two segments -- energy and power & electromechanical -- that serve the Asian, North American and Western Europe markets.

The power segment denotes the CUI Group of companies, comprised of subsidiaries CUI Inc, CUI Canada and CUI Japan. The companies work with the networking and telecom industries by developing power and electro-mechanical components.

They make compact audio devices like buzzers, speakers and microphones as well connectors and cable assemblies, motion detectors, power supplies and converters, and cooling fans and heat sinks.

The energy segment denotes the Orbital group of companies, which includes subsidiaries Orbital Gas Systems Limited and Orbital Gas Systems, North America. They handle a portfolio of products services and resources for the oil and gas, petrochemical, power, nuclear and environmental industries. They also design, install and commission industrial gas sampling, measurement and delivery systems.

Orbital Gas Systems boasts two flagship energy products. The first is its GasPT platform, which has a revolutionary method of almost instantly and accurately determining the quality of natural gas.

The company’s second leading product is its VE technology, which employs specialized sampling probes to take smaller, more consistent and cleaner gas samples.

CUI also has a 20% equity investment in Virtual Power Systems Inc, which develops AI technology to enable energy to be reallocated on-demand to data center racks, nodes, workloads or circuits.

Inflection Points

But CUI Global has ambitious plans to completely transform itself into a much larger energy- and technology-services company.

In May, CUI announced plans to purchase four privately held US companies that provide services to the oil & gas, wireless telecommunications and utility industries and combine its subsidiaries with them to create a whole new company with annual revenues of about $350 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of at least $40 million.

Under the proposed deal that would create a strong player in midstream/downstream energy infrastructure, current CUI shareholders will own about 15% of the new company, while shareholders of the four private businesses will own 85%.

The deal would include issuing 160 million shares of CUI stock, $30 million in cash, a $45 million one-year unsecured sellers note, the assumption of $15 million in outstanding debt of the four companies and a $200 million earn-out payable over five years based on performance targets.

The chief executive officer of the new combined company will be Jim O’Neill, formerly of Quanta Service -- an infrastructure-services company that enjoyed strong acquisition growth during his tenure in top management roles.

CUI CEO William Clough and Rusty Brown, former executive vice president at Show Group, will report to O’Neil, according to CUI’s Form 8-K. In addition, an executive from each of the four companies will round out the management team.

“With Jim O'Neil at the helm, executing his vision for a transformed CUI Global and leveraging his extensive experience as an integrated infrastructure solutions provider for the electric power, oil & gas and telecommunication industries, the new CUI Global will be positioned to chart a path of long-term value creation for our shareholders," said Clough.

CUI has yet to formerly release the names of the four companies, which include a maintenance- and repair-services company with clients such as ExxonMobil and Motiva; an infrastructure-services provider serving BP and Noble Energy; an industrial-services firm focused on insulation and related services boasting KBR, Kiewit and Gulf Island Fabrication as customers; and a wireless-telecommunications firm focused on site acquisition activities and construction in the Southeastern US and Puerto Rico, with clients including AT&T, MasTec, Nokia and Verizon.

However, according to CUI’s Form 8-K, the company refers to the four companies collectively as “Project Nikola.” The 8-K also names four “roll up” companies as Castille Telecom LLC, Fusion Industries LLC, Land Coast Insulation Inc and Signature Associates LLC.

CUI said in the 8-K it hopes to close the deal in the third quarter of 2019 and then embark on an aggressive acquisition strategy. Eighteen months after the deal’s close, the new company -- called Pro Forma CUI for now -- plans to be on a path toward $1 billion in revenues and EBITDA of $180 million.

Outlook

Pro Forma CUI notwithstanding, the latest financials for CUI are from its first quarter, which ended March 31.

CUI reported $23 million in revenue, up from $22 million in the year-ago period, and ended the quarter with cash and cash equivalents of $800,000, with restricted cash of $500,000.

CUI Global also reported a narrowing consolidated net loss of $3 million, compared to a loss of $3.3 million in the same quarter of 2018. And it produced a gross profit of $7.7 million, compared to $6.6 million.

The company’s power and electromechanical segment's unaudited backlog was $19.6 million as of March 31, compared to $21.8 million at the end of December 2018. The energy segment's unaudited backlog was $13.4 million, compared to $15.7 million at December’s end

CUI in April secured a $10 million revolving credit line from Bank of America Merrill Lynch.

Contact the author: [email protected]

Follow him on Twitter @PatrickMGraham

 

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Capital Network analyst discusses 'transformational' CUI Global deal

Capital Network analyst Ed Stacey says a proposed deal to combine CUI Global (NASDAQ:CUI) with four other businesses will result in an entirely transformed entity with more than 3x the revenues (estimated) of the existing CUI business. The four target businesses provide services to...

on 05/20/2019

5 min read