KeyArch (NASDAQ:KYCH) has entered into a definitive agreement to combine with charging network ZOOZ (TASE:ZOOZ) at a pro forma equity value of up to $100 million.

Lod, Israel-based ZOOZ has designed an EV-charging station that provides increased efficiency by harnessing kinetic energy while vehicles charge.

The combined company is expected to trade on the Nasdaq once the deal is completed in the fourth quarter of 2023.

Transaction Overview

KeyArch has about $25 million in its current trust after seeing about 79.3% of share redeemed at an extension vote earlier this month. This allowed KeyArch to extend its deadline up to January 27, 2024.

The parties will consider raising a PIPE and KeyArch must maintain at least $10 million in cash available in order for the deal to close.

Existing ZOOZ shares are to be converted via a reverse split at a ratio of about 11.6 to 1, resulting in 6,000,0000 total shares at $10 per share for an initial equity value of $60 million.

This ratio is to be finalized and voted on at a ZOOZ shareholder meeting. But, as a preliminary figure, it is a big step up from ZOOZ’s current market cap of around $17.9 million.

ZOOZ shareholders also stand to earn up to 4,000,000 more shares through an earnout if the company hits either share price or operational performance targets.

The first 1,000,000 are to go out if the company generates $10 million or more in total revenue across four of five consecutive quarters or if it trades at or above $12 for 20 of 30 trading days.

The next tranche is to release 1,400,000 shares at a revenue target of $20 million or share price hurdle of $16. The final 1,600,000 would be dispersed if the company hits either a revenue target of $30 million or share price hurdle of $23.

The parties have not yet released their merger documents, but KeyArch’s profile page will be updated once additional information is made available.

Quick Takes: ZOOZ is the latest in an increasing trend of companies listed at smaller international exchanges seeing a SPAC has their right to getting a leg up into more liquid markets.

The company is down about -84% since its April 2021 debut on the Tel Aviv Stock Exchange. That is hardly an unusual streak for a relatively early tech venture through these months, but many on US exchanges have begun to rebound with an end to rate hikes in sight and fears of a recession waning.

ZOOZ also sees this transaction as strategic as well, as the company hopes to leverage KeyArch’s business network in China and East Asia to put down roots there as it expands in Europe and North America.

ZOOZ has launched its initial sales in some EU markets and has made its first installation in the US. And, while it is entering a highly competitive field for EV chargers in these geographies, there is business sense in trying its to get its infrastructure built out there as quickly as possible.

That kind of buildout will likely require capital, however, and this deal does not appear to be headed towards having an outsized cash component. The deal would provide a minimum of $10 million to ZOOZ’s balance sheet if achieves its minimum.

But, if recent transactions are any judge, the two sides may have an uphill climb to add outside cash that will not have extra dilutive elements to it.

ZOOZ reported that it finished 2022 with about $19.5 million in existing cash available, although it has continued to burn through its operations. It also posted about -$9.4 million in negative cash flow for the year.

For now, its network consists of “several” sites Europe, but its first installation dates back to 2018 and the company was itself founded in 2013.

Its pitch to clients is that the kinetic energy capture in its charging kiosk design makes it carbon neutral, and can lead to faster charges. Down the supply chain, this means each station effectively causes 23x fewer CO2 emissions as compared to charging stations supported by chemical batteries.

But, kinetic energy capture also requires moving parts, which means maintenance. ZOOZ estimates that each kiosk can deliver 200,000 high-power charge and discharge cycles before needing to be tended to.

That makes it perhaps a better fit for some scenarios than others. But, ZOOZ has already brought in help from a fellow de-SPAC by appointing Tritium (NASDAQ:DCFC) veteran Kevin Pugh as VP of sales in February.

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ADVISORS

• Company
  • Shibolet & Co. is serving as Israeli legal advisor.
  • Lowenstein Sandler LLP is serving as U.S. legal advisor.
• SPAC
  • Ellenoff Grossman & Schole LLP is serving as U.S. legal advisor.
  • Goldfarb Gross Seligman& Co. is serving as Israeli legal advisor.