Delta Drone International Limited (ASX: DLT) has entered into a binding agreement with a consortium of investors* led by NASDAQ-listed Medigus Ltd and facilitated by Israeli venture capital firm L.I.A Pure Capital Ltd (collectively “Buyers”) to sell ParaZero Technologies Ltd (“ParaZero”) which operates the Company’s drone safety business, for a total consideration of A$6 million in cash.
This transaction allows the Company to focus on becoming one of the leading drone service providers globally after its successful acquisition of the Delta Drone South Africa business in December 2020 and the purchase of Arvista Pty Ltd in Australia in September 2021.
Post-sale this will leave the Company with a strengthened balance sheet and a substantially reduced need for cash to fund the ongoing R&D investment that had been required by the ParaZero business, allowing the Company to focus on aggressively growing its global drone services business.
*See Appendix for more details on the Buyers.
Key terms of the sale include:
• Purchase price of A$6 million payable to the Company in cash, with $5.1 million to be received on completion and $0.9 million to be released from escrow after 12 months (subject to there being no warranty claims);
• The Company to retain usage rights in relation to the use of the technology and products developed by ParaZero (see the Appendix for more information); and
• The Company to retain additional equity upside in the transaction value from the issue of Warrants to invest in ParaZero again in the future under certain conditions (see the Appendix for more information).
As the Company has sought and obtained confirmation from ASX that Listing Rules 11.1.2, 11.1.3 and 11.2 do not apply to this transaction, there are no regulatory conditions that would prevent completion of the transaction, which is expected to complete in January 2022.
Additional details on the terms of the transaction are included in the Appendix to this announcement.
Commenting on the sale, Delta Drone International CEO, Christopher Clark said:
“ParaZero and its dedicated team were the inspiration for listing the Company on the ASX in 2018 and have been an important part of the Company since that time. With the drone services side of our business experiencing rapid growth, we believe now is the time to focus on the drone services business and still retain the opportunity to utilise the ParaZero products and services on a commercial basis. The exposure to ParaZero that we have retained through the transaction will also enable the Company’s shareholders to benefit from the future success of the ParaZero technology.”
“For the Company, this sale allows us to invest in building our team and to aggressively accelerate growth across all our drone services businesses, with the vision of becoming one of the leading drone service providers in the world.”
“We want to thank all of the ParaZero team for their efforts over the last few years as they have delivered on their vision to develop world-leading technology for the safe use of drones in commercial applications.”
The sale is not subject to any regulatory conditions and is expected to complete once residual conditions have been met which are expected to be finalised in the coming weeks. The Buyers have already paid their respective proportions of the completion payment into an escrow account for further certainty of funding pending completion.
The proceeds from the sale will significantly strengthen the Company’s balance sheet with approximately $5.1 million in cash being available at completion (less the net debt in ParaZero being assumed by the Buyers and transaction costs, which together will be approximately $0.45 million) and a further $0.9 million which will be available 12 months from completion (subject to there being no future warranty claims). These funds will allow the Company to invest in building its team, particularly in its sales, marketing and service areas so that it can deliver its leading drone services to more customers in the mining and agriculture industries, where it is seeing significant growth opportunities.
More specifically, the funds received will be retained by the Company and used to meet both its existing financial obligations and to pursue opportunities for investment in new drone-based software & geospatial data-related technologies that are more directly related to its ongoing service offerings within the Australian and African markets. The Company also intends to
pursue further acquisition opportunities that will allow it to complement its current services with new technical capabilities or to expand into new geographic locations.
There will be no changes to the board or senior management of the Company as a result of the transaction. The Company intends to provide an update on its overall capital and management planning as part of its financial year results announcement in February 2022.