If there was any concern about how Green Automotive Co. (OTCMKTS:GACR) would continue its impressive expansion, that question was answer today. GACR will be issuing debt to raise some capital, taking advantage of the low interest rate environment we're currently in.
The press release announcing the issuance of the fixed income didn't specify how much working capital Green Automotive Company was aiming to raise. But, given that the company's current market cap is $27 million and that the 2012 acquisition of shuttle bus maker Newport Coachworks cost an estimated $13 million, it wouldn't be unreasonable to presume the bond issuance will is on the order of seven figures... if not more.
Given the numbers at hand, it wouldn't be tough to wonder if a seven-figure fund-raiser via a fixed income instrument was a case of Green Automotive Co. biting off more than it can chew, especially knowing last quarter's revenue was only a tad more than $1 million. The past doesn't accurately indicate the future for GACR, however. This is a case where a company is paying to put multiple pieces in place now for strong revenue in the future.
Take the acquisition of bus-maker Newport Coachworks as an example. While Green Automotive Co. had to pay $13 million to bring the company under the GAC umbrella, the company felt then that the electric bus opportunity - via Newport Coachworks - could be worth $37 million in sales per year. So where is that revenue now? It's coming, but the first thing GACR needed to do was re-outfit the production facility and redesign its shuttle buses for battery power. It also needed to take time to redefine itself as an electric bus company to potential vendors. It was time well spent. In the meantime, Don Brown Bus Sales has awarded GAC an order of more than 400 battery-powered buses to be delivered over the course of the next few years.
Point being, Green Automotive Company spends its money well.
GACR isn't just a bus company, however. It also owns an e-car technology company that not only provides maintenance and service for existing EVs, while simultaneously developing some of the technology that will be going into a new EV being designed by an EU consortium. This group of companies should come up with a prototype at some point in 2014, with the vehicle perhaps - realistically - going into production sometime in 2015 or 2016. It takes money to design and build those technologies, however, and there's no immediate payback. There is an eventual payback, however, and considering how well Tesla's multi-year development process has finally paid off, GACR shareholders have plenty to look forward to.
Although Green Automotive Co. didn't say what its plans were for this new cash, more complementary acquisitions are a distinct possibility. The company bought 21% of electric truck maker Viridian Motor Corp. earlier in the month, and though that's technically not a controlling interest, it's certainly an influential interest that may well benefit Viridian as much as it benefits GAC. Indeed, as we've seen from the combination of all of Green Automotives acquisitions this far, the whole is greater than the sum of its parts.
Bottom line? While the prospect of a small company taking on new obligations can be daunting for shareholders, in the case of Green Automotive Company - which has proven it knows how to piece together a company with complementary pieces - the cash injection is actually an exciting prospect.
For more on Green Automotive, visit the SCN research page here.
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