8-K: Eightco Holdings Sells Ferguson Containers Business in $3 Million Deal

Eightco Holdings Inc. has agreed to sell its Ferguson Containers business for $557,835 in cash, a $2.5 million seller note, and potential earnouts based on future EBITDA performance.

Summary

• Eightco Holdings Inc. has entered into an agreement to sell the assets of its subsidiary, Ferguson Containers, Inc., to Ferguson Containers, LLC.
• The total purchase price includes $557,835 in cash, a $2.5 million seller note, and potential earnout payments.
• The seller note will bear interest at 9.75% per year, with monthly payments of $32,692.56 starting January 1, 2025, and a full payment due on December 31, 2034.
• Earnout payments of $250,000 each are contingent on the buyer achieving $1 million in EBITDA for 2024 and 2025, with prorated amounts for EBITDA between $900,000 and $1,000,000.
• The deal is subject to shareholder approval and a fairness opinion, with a target closing date by the end of 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The sale provides cash and potential future income, but also involves risks and uncertainties. The deal structure is standard, and the company is divesting a business unit.

Positives

• The sale provides Eightco Holdings with an immediate cash infusion of $557,835.
• The seller note provides a steady stream of income with monthly payments of $32,692.56.
• Potential earnout payments offer additional upside if the buyer performs well.
• The sale allows Eightco to divest a business unit and potentially focus on other areas.

Negatives

• The sale requires shareholder approval, which could introduce uncertainty.
• The earnout payments are not guaranteed and depend on the buyer's performance.
• The seller note is a long-term commitment with full payment due in 2034.
• The company is selling a business unit which may have been a source of revenue.

Risks

• The transaction is subject to shareholder approval, which may not be obtained.
• The buyer's ability to achieve the EBITDA targets for earnout payments is uncertain.
• The buyer has a 5 day review period where they can terminate the agreement for any reason.
• The fairness opinion may not be obtained.

Future Outlook

The company expects to seek shareholder approval for the sale at the next shareholder meeting, which is anticipated to be held before the end of 2024. The closing of the transaction is also expected by the end of 2024.

Management Comments

• The company has agreed to sell certain assets constituting the business of the Seller to the Buyer.

Industry Context

This transaction reflects a strategic move by Eightco Holdings to divest a business unit, which is a common practice in corporate restructuring and portfolio management. The corrugated box industry is competitive, and this sale may allow Eightco to focus on other core areas or reduce debt.

Comparison to Industry Standards

• The sale of a business unit for a combination of cash, a seller note, and earnouts is a fairly standard structure in M&A transactions.
• The earnout structure is designed to align the interests of the buyer and seller, incentivizing the buyer to achieve specific performance targets.
• Comparable transactions in the packaging industry often involve similar deal structures, with valuations based on multiples of EBITDA or revenue.
• The 9.75% interest rate on the seller note is relatively high, which may reflect the risk associated with the buyer's creditworthiness or the specific terms of the deal.

Stakeholder Impact

• Shareholders will need to approve the transaction.
• Employees of Ferguson Containers may be offered employment by the buyer.
• The sale may impact the company's revenue and profitability.

Next Steps

• The company will seek shareholder approval for the sale.
• The company will obtain a fairness opinion from a qualified independent financial advisor.
• The company will work towards closing the transaction by the end of 2024.

Key Dates

Keywords

Asset Purchase Agreement, Ferguson Containers, Eightco Holdings, EBITDA, Seller Note, Earnout, Divestiture, Shareholder Approval