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NEW YORK (
Comverge's(COMV) sale to a private equity firm may save the energy metering company, but it comes at a big discount that will hurt existing shareholders.
On Monday, Comverge said it would sell itself for $49 million -- or $1.75 a share in cash -- to the private equity firm
H.I.G. Capital. That takeover price falls well below analyst estimates of the company's worth and its 1-year highs even after a 2012 stock rally.
"The transaction addresses the risks associated with the company's liquidity position, provides for our financial viability going forward and allows Comverge to continue to execute on its business plan with the financial backing of H.I.G. Capital," said Comverge Chairman Alec Dreyer.
Prior to Monday's private equity buyout, the company released an auditor opinion in a March 15 regulatory filing that showed its finances would break debt covenants, raising "substantial doubt about Comverge's ability to continue as a going concern." In addition, Comverge said it had received default notices from its lenders, precipitating the need for an immediate capital raise or sale.
"Absent the H.I.G. Capital transaction, Comverge believes it would be unable to raise the necessary capital to fund continuing operations, which would place existing stockholder investment in the Company at significant risk," said Comverge in a press release.
Still, analysts gave the Norcross, Ga- based company a value far higher than the $1.75 takeout price, even after accounting for Comverge's liquidity strains. The takeover price falls well below the $2.35 share value for Comverge that analyst polled by
Bloomberg give the company. Meanwhile, in early Monday trading, Comverge's shares were trading in line with offer price after a halt related to the deal news.
Comverge shares have rallied over 40% year to date after falling 80% in 2011 and to all-time lows on continued losses at the company and dwindling liquidity as debts came due.
Overall, Comverge lost $13 million in 2011, adding to a string of lossmaking years as rising expenses cut into the company's fast-growing energy efficiency solution sales.
Comverge's private equity investors may be targeting a continued focus by federal regulators on promoting energy efficient "smart" power grids. Last March, Comverge shares surged after the
Federal Energy Regulatory Commission smart grid rules that could eventually aid sellers of energy efficient metering and data like Comverge and
EnerNoc(ENOC - Get Report)
As part of Monday's buyout, Comverge will also enter a forbearance agreement on $12 million in debt from lenders like
Silicon Valley Bank and
Grace Bay Holdings. The company has also agreed to a 30-day "Go Shop" period, where it can seek a higher bid.
Since the fall of 2010, Comverge has used investment banker
JPMorgan Chase(JPM - Get Report) to look at a sale of the firm, debt or equity to help raise capital and maintain its covenants. JPMorgan advised Comverge on Monday's sale and will help the company seek alternative bids in its "go shop."
For more on JPMorgan, see why JPMorgan is
ready to take Wall Street's top spot.
--Written by Antoine Gara in New York