8-K: 1847 Holdings LLC to Acquire CMD Inc. and CMD Finish Carpentry LLC for $18.75 Million

1847 Holdings LLC's subsidiary, 1847 CMD Inc., has entered into an agreement to acquire CMD Inc. and CMD Finish Carpentry LLC for $18.75 million in cash, subject to adjustments.

Summary

• 1847 Holdings LLC, through its subsidiary 1847 CMD Inc., has agreed to acquire CMD Inc. and CMD Finish Carpentry LLC.
• The total purchase price is $18.75 million in cash, subject to adjustments for net working capital.
• A deposit of $1 million has been paid upon execution of the purchase agreement.
• The transaction is expected to close on or before December 3, 2024.
• The purchase price is subject to adjustments for net working capital, which may result in a cash payment to 1847 CMD or a promissory note to the seller.
• If a promissory note is issued, it will be secured by the assets of 1847 CMD and the CMD Companies, guaranteed by 1847 Holdings and the CMD Companies, and by a pledge agreement in the equity of 1847 CMD and the CMD Companies.
• The agreement includes customary representations, warranties, and covenants, including a three-year non-compete clause for the seller.
• There are mutual indemnification clauses for breaches of representations or warranties and failure to perform covenants.
• The seller's liability for breaches of non-fundamental representations and warranties is capped at $2,512,500, with a deductible of $60,000.

Sentiment

Score: 7

Explanation: The document outlines a standard acquisition, which is generally positive for growth, but the potential for a promissory note and working capital adjustments introduces some uncertainty.

Positives

• The acquisition expands 1847 Holdings' portfolio through the addition of CMD Inc. and CMD Finish Carpentry LLC.
• The purchase agreement includes a three-year non-compete clause for the seller, protecting 1847 Holdings' investment.
• The deal includes mutual indemnification clauses, providing some protection against breaches of contract.

Negatives

• The purchase price is subject to adjustments for net working capital, which could increase the final cost.
• A promissory note may be issued to the seller if the net working capital adjustment favors them, adding debt to 1847 CMD.
• The seller's liability for breaches of certain representations and warranties is capped, limiting 1847 Holdings' recourse.

Risks

• The closing of the transaction is subject to customary closing conditions, which could delay or prevent the acquisition.
• The net working capital adjustment could result in a higher purchase price or the issuance of a promissory note.
• There is a risk that the seller may breach the non-compete agreement, although legal recourse is available.
• The seller's liability for breaches of certain representations and warranties is capped, limiting 1847 Holdings' recourse.

Future Outlook

The transaction is expected to be completed on or before December 3, 2024, subject to customary closing conditions.

Management Comments

• Ellery W. Roberts, Chief Executive Officer, signed the report on behalf of 1847 Holdings LLC.

Industry Context

This acquisition reflects a trend of consolidation within the construction and related services industries, where companies seek to expand their market presence and service offerings through strategic acquisitions.

Comparison to Industry Standards

• The acquisition of CMD Inc. and CMD Finish Carpentry LLC is similar to other acquisitions in the construction and building materials sector, where companies often acquire smaller firms to expand their geographic reach or service offerings.
• The purchase price of $18.75 million is within the range of typical acquisitions for companies of this size in the industry, although the final price will depend on net working capital adjustments.
• The inclusion of a non-compete agreement and indemnification clauses is standard practice in such transactions, providing a level of protection for the acquiring company.
• Comparable companies in the sector include Masco Corporation (MAS), which has a history of acquiring smaller companies to expand its product portfolio, and Builders FirstSource (BLDR), which has grown through strategic acquisitions.

Stakeholder Impact

• Shareholders may view the acquisition positively as it expands the company's operations.
• Employees of CMD Inc. and CMD Finish Carpentry LLC will become part of 1847 Holdings.
• Customers of CMD Inc. and CMD Finish Carpentry LLC may experience changes in service or product offerings.
• Suppliers of CMD Inc. and CMD Finish Carpentry LLC will now be dealing with 1847 Holdings.

Next Steps

• The companies will work towards satisfying the closing conditions.
• The transaction is expected to close on or before December 3, 2024.
• The net working capital will be calculated to determine any adjustments to the purchase price.

Key Dates

Keywords

acquisition, purchase agreement, CMD Inc, 1847 Holdings, merger, net working capital, promissory note, non-compete, indemnification