The acquisition of new technologies is important for the growth of a company in virtually any sector, but has become particularly relevant within the disinfection technologies space given the ongoing Covid-19 pandemic. Hence, the recent acquisition announcement by the management of disinfection technology player Applied UV Inc. (AUVI, Financial) does not come as a big surprise. The New York-based company announced the signing of a non-binding letter of intent with its distribution partner, Akida Holdings, to acquire certain assets, including its rights to manufacture and sell the Airocide disinfection technology.
Background of the transaction
Applied UV has been on my watch list ever since it went public. The company was in the news for its exclusive joint distribution and licensing agreement with Akida Holdings in September. Following it public offering, a large amount of the funds raised were earmarked specifically for the acquisition of new technologies. The signing of this letter of intent with Akida Holdings is the first big news by the company on the acquisitions front.
Management said it is exploring the acquisition of Akida Holdings' assets, including the Airocide system of patented aerial pathogen disinfection technology, which has a vast application not just in residential premises but across industries where the company is already active. The estimated value of the acquisition is $12 million as per the release and the consideration is through the stock of Applied UV, but the process of due diligence is still pending.
Why is Airocide so important for Applied UV?
Akida Holdings is a private company headquartered in Jacksonville, Florida. It owns the exclusive global rights to Airocide, a trademarked air purification technology developed for NASA by the University of Wisconsin and has been clinically tested by various researchers at Texas Tech University, University of Wisconsin and Texas A&M University. Airocide is an established technology in the air purification space and is known to eliminate more than 99.99% of certain biological contaminants that enter its system as per the most recent press release.
Each Airocide product has a fan that draws the air from around the place of installation into the unit, after which it is slowly pushed across hollow glass tubes. These tubes are coated with a catalyst that is a patented combination of chemicals, including titanium dioxide. These are known to initiate a chemical process known as photocatalytic oxidation that works toward the purification of the air. The reason why this product could be a true game-changer for Applied UV is that it appears to be visibly superior to most commonly available air purifiers today, which can only capture particles of the size of 0.3 microns or more. The Airocide systems have the ability to go below 0.3 microns and filter out a large variety of bacteria, mold spores, viruses and volatile organic compounds. Its application against VOCs made Airocide particularly relevant for NASA.
Given Applied UV's portfolio of surface disinfection products, such as the SteriLumen disinfecting mirror and the disinfecting drain, Airocide is a particularly relevant acquisition as the company can market this air purification system to its existing client base of hotels and hospitals as well as to other sectors, such as wineries, grocery chains, schools, dental offices, cannabis and even direct-to-consumer. Thus, the strong synergies between the products are unquestionable.
Financials and final thoughts
Applied UV has decent financial fundamentals. The company has a net margin of 28.72%, resulting in a phenomenally high return on equity of 98.82%. Its return on assets of 31.19% is significantly above its industry average and its Altman Z-score of 11.23 indicates the company is well within the safe zone in terms of financial stability.
At its current share price of $6, the company has a price-sales ratio of 7.56, which appears to be slightly high but its price-earnings multiple of 26.32 appears far more reasonable. Assuming that the Airocide deal goes through, I feel that it should have a significantly positive impact on the forward earnings forecasts of the company, resulting in a boost in the stock price in the near term. For investors with a high risk appetite who are well aware of the risks associated with microcap and nano-cap investing, Applied UV appears to be a decent long-term bet.
Disclosure: No positions.
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