ExeLED Holdings, Inc. (ELED) has exploded up the charts in 2017. The company, involved in the business of acquiring businesses providing LED lighting solutions, surprised the market by delivering outstanding returns without disclosing any information to justify them. We became very interested in this business, when we saw that the last press release was put out in 2015. Something is going on, but nobody can explain what. Even in the Yahoo Finance Forum, no trader could explain the news, although many of them were making money with the stock. At Insider Financial, we don’t like investing in illogical price movements and decided to commence an investigation to find out the reasons behind this volatility. This article is the result of our research. Have a look at the share price movement:
ExeLED Holdings Inc. is a very old business entity. It was founded on October 20, 1986 under the name of “Verilink Corporation.” The company seems to have made several transactions in its history, which includes mergers, share purchase agreements, and acquisitions. Investors can check the whole business history in this document. Here is a list of the most representative transactions:
– OELC, LLC: Share Exchange Agreement executed with the company on December 31, 2013.
– Energie Holdings, Inc. and Alas Acquisition Company: on January 27, 2014, the company signed a merger with these two companies.
Old companies, such as ELED, usually accumulate large amount of management know-how as well as individuals with large expertise. Due to this reason, we believe that the company decided with the acquisition of Energie and Alas to become a holding company. In our opinion, the move is quite ambitious, but also very savvy. Here is the text, wherein the company states its reasons:
” As a result of these transactions we are now a holding company, with Energie acting as our operating subsidiary, engaged in the business of the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our current business objective is to become a leading provider of advanced LED lighting solutions by acquiring and growing complementary LED based lighting fixture companies.” Source
In addition, it specified the business objective that the company will acquire other businesses.
“We are focused on acquiring specialized lighting companies for the architecture and interior design markets for both commercial and residential applications, with the intention to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting.” Source
The company is located in Arvada, Colorado and also owns a factory in Zeeland, Michigan.
What can be happening?
We went to see the most recent developments of the company to understand the business. During 2015 and 2016, the company sold LED products to “education, commercial office space, large multi-unit luxury residential and health care“. The products sold to these customers are produced by five European manufacturers and one in Taiwan. The company obtained the distribution rights from such factories categories’ long time ago and can offer a wide range of LED technologies to over 270 total products in 37 countries. The contracts signed with the producers are noted to be long term contracts in this document that we could have access to. The company explains its unique services in this way:
“These obstacles include designs that do not meet UL/CUL standards and building codes, the need to provide appropriate North American oriented marketing and product information and specifications, experience to leverage the lighting industry sales agent network, and market based product supply.” Source
Vertical integration transaction
The first thing that we thought, when we saw the business strategy and the company size, was: this company may be bought by one of these European factories. Who are they? We found the answer here:
“Our business model and product strategy is based upon collaboration with leading European lighting manufacturing companies, including Rudolpf Zimmermann, Bamberg Gmbh, Bamberg, Germany, Regent Beleuchtungskorper AG, Basel, Switzerland, Trilux GmbH & Co. KG, Arnsberg, Germany, Multiline Licht NV, Lummen, Belgium, Luxiona-Troll, Canovelles, Spain and Tons Lightogy Inc., New Taipei City, Taiwan.” Source
The next question is: are they big? This was a difficult question, as these are not public companies. We checked their websites. Most of them were in German, Spanish and Chinese language. We found out that the amount of employees working for them was not small. This is an example:
“Regent Beleuchtungskörper AG, with headquarters in Basel, has approximately 600 employees in six countries, is the market leader in Switzerland and one of the leading luminaire manufacturers in Europe. Our products are sold internationally through distribution partners in 35 countries.” Source
“Through its brands TROLL, METALARTE and SAGELUX, Luxiona Group, based in Canovelles (Barcelona) and with 85 years’ experience, generates 70% of its international business and ended 2014 with a 10% increase in turnover. Luxiona Group employs a team of 500 people and has 6 production plants, 4 logistics centres and 11 sales offices established in Europe, Asia and Latin America.” Source
Hence, we believe that these producers have the financial power to acquire ELED. Such a deal would be a vertical integration transaction that would make a lot of sense, because the buyer would obtain the know-how regarding ELED. Additionally, it would not have to negotiate prices with this American company. Furthermore, it could increase the prices to the other European competitors.
How do we explain the recent upside move? Maybe the company is being sold by bankers to these producers. We counted six parties that could be bidding; five European producers and one from Taiwan. How does it work? Perhaps one of the producers made a bid to buy the company and bankers had to contact the other producers to check whether they were interested. If any of the others made a bid too, the situation may have created a bidding war. And yes, the chatter of a bidding war could have produced ELED’s chart.
Another possibility may be that the company had received an offer from a competitor in the US. They may be interested in buying the company to acquire the contracts with the European manufacturers. The rationale here is: Why should we go to Europe and Taiwan to negotiate with producers if we can buy out a company that has already done the work? In addition, the producers could increase the distribution prices, when they see that American distributors are increasing the demand for their products. The following is a list of traditional lighting companies producing the same or other lighting products; some of them, like GE, and Philips, are very big:
“Acuity Brands Lighting, Inc., Eaton’s Cooper Lighting Business (a division of Eaton Corporation), Hubbell Lighting, Inc. (a division of Hubbell Incorporated), Juno Lighting Group (a division of Schneider Electric SA), GE Lighting and Philips Lighting (a division of Koninklijke Philips N.V.). Our LED products should tend to be alternatives to conventional lighting sources for applications within the commercial and residential markets. In these markets, we compete on the basis of unique designs, performance, energy savings, lamp life, and durability.” Source
Buyout to acquire the intangible assets?
The company has over 20 UL files. What is this? It is a proof that the company has tested the product and it meets the standards for safety in the US and Canada. The company states that it owns UL Listings for over 14,000 products for sale in the United States. Hence, a company outside the US may say: why do the tests again if we can buy out this small company that has already done the work?
We found out that the company has interesting assets and know-how. Thus, it may be an interesting acquisition target for one of its providers, or competitors. The best way to explain the recent chart price movements may be this way. We found out that many powerful companies are doing business with this company. So, ELED has some chances. Additionally, we checked the balance sheet and saw that the amount of liabilities is large. Thus, we believe that bankers and lenders may be trying to sell the company to a bigger institution with the ability to cover these debts. To sum up, there are many ways to explain what is going on with this company. We encourage investors to stay alert as we expect ELED to communicate it soon. When the market gets to know it, traders may make even more money. We will be updating our subscribers as soon as we know more. For the latest updates on ELED, sign up below!
Disclosure: We have no position in ELED and have not been compensated for this article.