Applied UV: Value Unlocked

The disinfection technology company witnessed a strong rally after acquisition news

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Ishan Majumdar
Feb 09, 2021
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Promising acquisitions often result in a drastic change in investor sentiment toward a company. The market's perception of the synergies associated with a given acquisition can often be alarmingly high and can often result in triple-digit appreciation in the value of a company's stock, making it a kind of a historic event for the company. Disinfection technology player Applied UV Inc. (

AUVI, Financial) just witnessed a similar spike after the announcement of its Airocide acquisition closing.

Company overview

Applied UV is a disinfection technology company that caters to the health care, hospitality, commercial and residential markets. It acts as the holding company of two entities SteriLumen, a company owning a vast portfolio of intellectual property associated with disinfection technologies, and Munn Works, a furnishing solutions provider to the health care and hospitality industries. Over the past two years, Applied UV has looked to build and distribute furnishing products such as mirrors and drains after integrating SteriLumen's proprietary surface disinfection technology. These products have been distributed across hotel chains, hospitals and various health care facilities all over the world.

Why did Applied UV's stock surge?

As we can see in the above chart, Applied UV's share price was more or less flat around the $5 mark for the past three months. However, it shot through the roof on Tuesday after closing its acquisiton of Airocide.

The company announced its intention to acquire Airocide technology from Akida Holdings, a Florida-based green air technology company, about three months ago, but there was limited optimism. However, with the closure of the deal, the market now sees Applied UV as a stock of much higher value. To add some context to the deal, Airocide is a highly valuable air purification technology that was originally built for NASA and is known to have the ability to eliminate almost all airborne biological contaminants that enter its system, irrespective of their size. Its photocatalytic oxidation process is known to destroy airborne viruses, bacteria, spores, fungi and other carbon-based molecules and has been clinically tested by various research organizations, such as the University of Wisconsin, Texas Tech University and Texas A&M University.

Apart from its strong complimentary benefits to Applied UV's portfolio, which includes the disinfecting mirror and drain that are supplied to various hospitality groups around the world, Airocide and the other assets of Akida Holdings are expected to add $4.7 million in revenue and $921,000 in Ebitda to Applied UV's financials. Management has provided a consideration of 1.375 million common shares of Applied UV stock and $901,274.96 in cash for the assets acquired. The long-term impact of this acquisition on the company's financials has yet to be determined.

Patent allowance in Europe

Before the Airocide acquisition, the company was in the news for its core pathogen destroying device getting a green light from the European Union Patent Office. The clearance of this bureaucratic hurdle was indeed a big step for the company as it works toward expanding its portfolio of intellectual property and building new disinfection technologies. The approval from the patent authorities opens the door for the vast European market in terms of commercialization and partnership opportunities. It is worth highlighting that prior to the Airocide acquisition, SteriLumen owned eight issued patents in the U.S. and two issued patents in the European Union with multiple pending patent applications in China, the Gulf Cooperation Council, Japan, South Korea, Taiwan and other countries. All of these are associated with the company's own SteriLumen Disinfecting System.

Final thoughts

Applied UV is fundamentally not a bad stock. The company has very low debt levels with a debt-to-equity ratio of 0.17 and a strong cash balance that is 6.21 times its debt level. Its Altman Z-Score is as high as 12.05, putting it well in the safe zone and its working capital ratios are also very strong, indicating a strong demand for its products and limited capital stuck in inventory and debtors. I believe the company can continue its growth trajectory if it is able to realize the synergies from the Airocide assets and demonstrate a strong performance through its upcoming quarterly results.

Disclosure: No positions.

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I am a qualified Chartered Accountant with a Masters in Management (Grande Ecole) from HEC Paris. I run a proprietary boutique financial advisory firm called Baptista Research (www.baptistaresearch.com) specializing in M&A, corporate advisory, equity research and valuation of listed companies. I have nearly a decade of experience spread across investment banks, financial advisory firms, investment funds and other corporates in many different geographies, such as France, Spain, India and others. I was a part of the LBO Financing team at BNP Paribas where I worked on deals with a combined enterprise value of over $1 billion. I have also worked in mergers and acquisitions with Credit Agricole CIB and corporate strategy with Groupe Danone SA. Over the years, I have developed a strong specialization in corporate valuations, strategy and financial analysis.