Bitcoin mining company Riot Blockchain, Inc. (Nasdaq: RIOT) officially acquired Ferrie Franzmann Industries LLC doing business as ESS Metron, a company that designs and produces electrical equipment. The Dec. 1 deal that complements Riot’s expansion efforts.
ESS Metron is a key supplier of Riot’s Whinstone bitcoin mining commercial data center facility and an important element in its effort to expand to 700 megawatts (MW) and scale its bitcoin mining operations. ESS Metron’s highly-engineered electrical equipment and components, such as switchgear and power distribution equipment, is beneficial to Riot’s “Bitcoin mining infrastructure and significantly improves Riot’s ability to improve its internal engineering capabilities.” Riot added that ESS Metron helped it develop its “customized immersion-cooling technology” for its “200 MW immersion-cooling expansion project.”
The deal will help ensure the timely installation of Riot’s new miners because of the crucial infrastructure ESS Metron provides. This acquisition also improves Riot’s position in the electrical supply chain because of ESS Metron’s existing relationships as a supplier for many third-party clients. It will also help to ensure Riot’s timely miner installations through de-risking procurement of mission-critical infrastructure.
Pursuant to the deal, the total $50 million consideration consists of up to 715,413 shares of Riot common stock and $25 million in cash, which will be funded with cash on the balance sheet. Accordingly, at closing Riot withheld 70,165 shares as indemnification; these will be issued to ESS Metron 18 months after closing.
According to the filings, ESS Metron will continue to operate as an independent subsidiary of Riot. All ESS Metron employees will be retained. Customer and supplier relationships of both companies will be retained. Additionally, ESS Metron will continue to operate out of Denver. For indemnification, the indemnity cap is $2.55 million or 5.1% of the transaction value. There is an indemnification bucket, but no deductible.
“The successful acquisition of ESS Metron marks yet another milestone in establishing Riot as a leader in Bitcoin mining,” Riot CEO Jason Les said in the press release. “Riots strategic position across the electrical supply chain is significantly enhanced as the Company will benefit from ESS Metron’s existing relationships with leading electrical suppliers globally. In addition, Riot will continue its fast-tracked expansion project as the Company benefits from internalizing ESS Metron’s engineering and industry expertise.”
“We are excited to continue the growth of ESS Metron’s business by joining Riot Blockchain,” ESS Metron CEO Stephen Howell said. “We look forward to continuing to provide best-in-class service to our growing customer base and actively collaborating with Riot in its ongoing expansion efforts.”
ESS Metron is represented by Davis Graham & Stubbs LLP. Riot Blockchain is represented by Sidley Austin LLP and its financial advisor is XMS Capital Partners, LLC.
On Nov. 30, Riot’s stock price was $37.37 and when the deal closed on Dec. 1, Riot’s shares closed at $35.60. A week later, on Dec. 8, Riot’s shares continue to decrease closing at $29.34.
Earlier this year, Riot completed its purchase of Whinstone, the largest bitcoin mining and hosting facility in North America. Additionally, Riot purchased 42,000 S19 Antminers from Hong-Kong cryptocurrency mining manufacturer Bitmain for approximately $138 million in an effort to increase its bitcoin mining hashrate to 7.7 exahash per second (EH/s), increasing the rate by almost 93%. The hashrate is “the total combined computational power that is being used to mine and process transactions on a Proof-of-Work blockchain, such as Bitcoin or Ethereum,” according to CoinDesk. However, in November, Riot announced that it was increasing its guidance for this rate by 11.7% to 8.6 EH/s for 2022.
