What: Revolution Lighting Technologies (NASDAQ:RVLT) soared more than 25% in early trading today, before settling down for a 16% gain by midafternoon, on news about its agreement to acquire Value Lighting and select affiliates.
Value Lighting is a leading supplier of lighting solutions to the residential housing sector and new construction marketplace in the U.S., with 2013 revenue of roughly $43 million. Revenue is expected to rise to nearly $55 million this year.
The deal calls for Revolution Lighting to pay a total purchase price tag of $35.6 million for 100% of the outstanding equity of Value Lighting's business and $3.5 million of assumed debt. According to a press release from Revolution Lighting, approximately $7.5 million of the price tag will be paid in cash, with the remaining $28.1 million to be paid in Revolution Lighting common stock.
So what: The market likes the acquisition, which seems to be a sound move for Revolution Lighting that will enable the company to penetrate new markets and will accelerate overall growth.
"Value Lighting's existing and new build customers are seeking to expand into LED lighting solutions and will provide a new and significant distribution channel for our company." Revolution Lighting Technologies Chairman and CEO Robert LaPenta said in a press release.
In addition to the incremental growth opportunity in its LED lighting solutions business, this acquisition gives Revolution Lighting a foothold into multifamily construction -- such as apartments and condominiums -- which has posted strong growth in recent years.
Now what: This is a continuation of the acquisition trend seen in 2013 as Revolution Lighting purchased Relume Technologies, CMG Energy Solutions, and Tri-State LED. The million-dollar question is whether this acquisition makes Revolution Lighting a stock to buy.
I'm not convinced it does yet. This acquisition will enable Revolution Lighting to expand and grow, but LED lighting remains a very competitive industry that features much larger competitors, such as Cree and Acuity Brands. While Revolution's stock price spiked in 2013, the company remains small in comparison to those companies. Then there is the fact that it's unprofitable, and with erratic revenue at that. In my opinion, Revolution Lighting does not live up to its market cap of nearly $315 million; it seems expensive and risky.