425: CleanSpark to Acquire GRIID Infrastructure in $155 Million All-Stock Deal, Expanding Tennessee Operations

CleanSpark is set to acquire GRIID Infrastructure for $155 million in an all-stock transaction, aiming to expand its bitcoin mining operations, particularly in Tennessee.

Summary

• CleanSpark, Inc. and GRIID Infrastructure Inc. have entered into a definitive merger agreement where CleanSpark will acquire all outstanding common stock of GRIID in an all-stock transaction.
• The total enterprise value of the transaction, including debt assumption, is $155 million.
• GRIID stockholders will receive CleanSpark common stock based on an exchange ratio determined by dividing the aggregate merger consideration by the total number of GRIID shares outstanding at closing, with the consideration calculated using a CleanSpark share price of $16.587.
• CleanSpark will assume all outstanding debt and obligations of GRIID.
• CleanSpark has provided GRIID with a $5 million working capital loan and a $50.9 million pay-down bridge loan to satisfy certain obligations.
• The acquisition is expected to add over 400 MW of capacity in Tennessee over the next two years, bringing CleanSpark's total planned and owned capacity to over 1 GW.
• CleanSpark anticipates exceeding 100 MW in Tennessee by the end of the year, growing to 200 MW in 2025 and over 400 MW in 2026.
• The transaction has been unanimously approved by both companies' Boards of Directors and is expected to close in the third quarter of 2024, subject to GRIID shareholder approval and customary closing conditions.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with the acquisition expected to drive growth and expansion for CleanSpark. The management comments are optimistic, and the strategic rationale for the transaction is sound. However, there are inherent risks associated with any acquisition, which tempers the sentiment slightly.

Positives

• The acquisition provides CleanSpark with a clear path to build out over 400 MW of infrastructure in Tennessee, backed by long-term power contracts.
• The merger is expected to result in rapid growth in the Tennessee Valley.
• GRIID's existing relationships with the Tennessee Valley Authority (TVA) provide access to affordable and reliable power.
• The acquisition aligns with CleanSpark's community-first approach to building data centers.
• The combined company will have a diversified geographic footprint with operations in multiple states.

Negatives

• The acquisition is subject to GRIID shareholder approval and customary closing conditions, which could delay or prevent the transaction from closing.
• CleanSpark is assuming all of GRIID's outstanding debt and obligations, which could increase CleanSpark's financial risk.
• The integration of GRIID's businesses and technologies may present challenges and could impact the combined company's operating efficiency.
• The success of the acquisition depends on CleanSpark's ability to retain and hire key personnel from GRIID.

Risks

• The integration of GRIID's businesses and technologies may not be successful.
• The expected benefits and synergies of the transaction may not be fully achieved or may be delayed.
• CleanSpark or GRIID may be unable to retain and hire key personnel.
• GRIID's stockholders may not approve the proposed transaction.
• The transaction may not close on a timely basis or at all.
• Unanticipated difficulties, liabilities, or expenditures may arise in connection with the transaction.
• The announcement or pendency of the transaction may negatively impact the parties' business relationships and operations.
• The announcement or pendency of the transaction may negatively impact the parties' stock prices.
• The transaction may disrupt current plans and operations of CleanSpark or GRIID.
• The combined company will be reliant on a limited number of key employees.
• The availability of financing opportunities and economic conditions may impact the combined company's performance.
• The combined company will be dependent on continued growth in blockchain and bitcoin usage.
• Anticipated additions to CleanSpark's hashrate may be delayed.
• The electrical power available to CleanSpark's facilities may not increase as expected.
• The success of CleanSpark's digital currency mining activities is subject to various risks.
• The industries in which CleanSpark and GRIID operate are volatile and unpredictable.
• Increasing difficulty rates for bitcoin mining may impact profitability.
• Changes in network and infrastructure may impact the combined company's operations.
• New or additional governmental regulation may impact the combined company's operations.
• The anticipated delivery dates of new miners may be delayed.
• The ability to successfully deploy new miners is subject to various risks.
• The combined company will be dependent on utility rate structures and government incentive programs.
• The combined company will be dependent on third-party power providers for expansion efforts.
• The combined company's ability to execute on its business strategy is subject to various risks.
• CleanSpark's ability to remediate the material weakness identified in its internal control over financial reporting may be delayed.
• Global and regional changes in the demand for the services of CleanSpark and GRIID may impact the combined company's performance.
• Security threats on facilities and infrastructure may impact the combined company's operations.
• Insufficient liquidity may impact the combined company's operations.
• Unexpected cost increases, inflationary pressures, or technical difficulties may impact the combined company's operations.
• Legislative and regulatory initiatives addressing global climate change or other environmental concerns may impact the combined company's operations.
• Public health crises, including pandemics and epidemics, may impact the combined company's operations.
• International monetary conditions and exchange rate fluctuations may impact the combined company's performance.
• CleanSpark's ability to complete any other announced or any other future dispositions or acquisitions on time, if at all, is subject to various risks.
• Security and cybersecurity threats and hacks may impact the combined company's operations.
• The combined company will be dependent on third parties to maintain cold and hot wallets that hold CleanSpark's bitcoin.
• Other economic, business, competitive, and/or regulatory factors may affect the combined company's businesses generally.

Future Outlook

CleanSpark expects to add over 400 MW in Tennessee over the next two years, with plans to exceed 100 MW by the end of 2024, 200 MW in 2025, and over 400 MW in 2026. The company aims to build infrastructure capable of powering as much as one gigawatt of data center operations in Tennessee.

Management Comments

• Zach Bradford, CleanSpark's CEO, stated that the acquisition would give CleanSpark a clear and steady path to accomplish in Tennessee what they achieved in Georgia, building out over 400 MW of infrastructure backed by valuable, long-term power contracts.
• Trey Kelly, GRIID's CEO, expressed excitement for GRIID to join the CleanSpark team, citing a shared vision and values as an ideal business combination.
• Harry Sudock, GRIID's CSO, stated that growing their portfolio of data centers in Tennessee positions them to continue strengthening the resilience of the power grid while delivering CleanSpark's leading mining capabilities.

Industry Context

This acquisition reflects a trend of consolidation in the bitcoin mining industry, as companies seek to increase scale and efficiency. CleanSpark's acquisition of GRIID allows it to expand its operations in Tennessee, a region with access to affordable and reliable power, and compete more effectively with other major players in the industry.

Comparison to Industry Standards

• CleanSpark's acquisition of GRIID is similar to other recent acquisitions in the bitcoin mining industry, such as Riot Blockchain's acquisition of Whinstone US, which aimed to increase Riot's mining capacity and efficiency.
• The planned expansion to over 1 GW of capacity puts CleanSpark in a competitive position with other large-scale bitcoin mining companies, such as Marathon Digital Holdings and Core Scientific.
• CleanSpark's focus on low-carbon power aligns with the growing industry trend towards sustainable bitcoin mining practices, as companies seek to reduce their environmental impact and attract environmentally conscious investors.

Stakeholder Impact

• Shareholders of GRIID will receive shares of CleanSpark common stock.
• The acquisition is expected to create new job opportunities in Tennessee.
• The combined company will continue to support Bitcoin, which is an essential tool for financial independence and inclusion.
• The acquisition will strengthen the resilience of the power grid in Tennessee.

Next Steps

• GRIID stockholders need to approve the merger.
• The companies need to satisfy customary closing conditions.
• CleanSpark will integrate GRIID's businesses and technologies.
• CleanSpark will focus on the best opportunities in the GRIID pipeline in Tennessee.
• CleanSpark will work with local communities as it builds infrastructure in Tennessee.

Key Dates