Merchant processor Net Element Inc. has a letter of intent to merge with Mullen Technologies Inc., a privately held startup that plans to sell Chinese-made electric sports cars in the U.S. The pending deal, announced Monday, requires Net Element to divest its payment-processing business.
The so-called “reverse triangular merger” is an all-stock deal that will enable Brea, Calif.-based Mullen to go public without having an initial public offering. Mullen will own 85% of the surviving company, install a management team led by founder and chief executive David Michery, and get control of publicly traded Net Element’s listing on the Nasdaq Global Select Market. Net Element’s shareholders will own 15%.
Other than the announcement that it will be sold, what will happen to Net Element’s processing business was not immediately known. A Net Element spokesperson did not respond to a Digital Transactions News inquiry.
Besides its North American merchant-processing business, North Miami Beach, Fla.-based Net Element has an international operation based in Russia. Russia generated $3.2 million of the company’s $65 million in total revenues for 2019, says Lisa R. Thompson, a senior equity analyst who follows Net Element at Chicago-based Zacks Small-Cap Research. The North American segment processed $3.2 billion in volume last year, up 10.3% from 2018. The international segment posted $425 million in volume, down 2.1%.
The post-merger company will be known as Mullen Technologies Inc., and it won’t have much to do with payments. Mullen, which owns eight car dealerships in California and one in Arizona in addition to the CarHub online auto marketplace and other businesses, plans to import the electric-powered, Chinese-made Dragonfly K50 luxury sports car to the U.S. next year. Mullen also is developing electric car batteries and plans to manufacture electric vehicles, according to Net Element.
While IPOs get more headlines—Allentown, Pa.-based payments processor Shift4 Payments Inc. went public June 4—reverse mergers are another way a company can tap the public equity markets. For Mullen, “it gets them out the door quicker, costs less, pays bankers less,” Thompson tells Digital Transactions News.
Net Element in early May announced plans to “explore strategic alternatives … to unlock shareholder value.” The company said “it appears that the public markets do not appropriately recognize the value of our business.”
Net Element’s stock rocketed Monday in the wake of the announcement, closing at $6.90 per share, up 50% from Friday’s $4.60 close. At one point its shares were trading for more than $12. Net Element did not state a value for the pending deal. Yahoo! Finance lists Net Element’s enterprise value at $19.9 million.
The letter of intent also requires Net Element to raise $10 million in a private placement. Mullen shareholders could acquire another 5% of the post-merger company if it generates more than $100 million in revenue over 24 months after closing.