SMART Global Holdings, Inc. (“SGH” or the “Company”) announced that the Company, through its wholly owned subsidiary SMART Modular Technologies (LX) S.à.r.l., has entered into an agreement to sell an 81% interest in SMART Modular Technologies do Brasil – Indústria e Comércio de Componentes Ltda. (“SMART Brazil”) to Lexar Europe B.V., an affiliate of Shenzhen Longsys Electronics Co., Ltd. for approximately $166 million in cash consideration. The purchase price values 100% of SMART Brazil at an initial enterprise value of $205 million.
SMART Brazil operates as a stand-alone business focused on the Brazil market. It assembles and tests modules for electronics manufacturers that sell devices to Brazilian consumers. These manufacturers turn to SMART Brazil for reliable, standards-based modules that are assembled in Brazil.
“The majority divestiture of our standards-based, commodity module business in Brazil will enable SGH to focus on our strategy of delivering high-performance, high-availability solutions to our enterprise customers,” said Mark Adams, chief executive officer of SGH. “This transaction will strengthen our financial position, enabling us to increase our strategic investments into domestic research and development, and US-based production of advanced technologies.”
Transaction Summary
Under the terms of the agreement, the purchase price values 100% of SMART Brazil at an initial enterprise value of $205 million. This amount has two separate components, an upfront value of $170 million and a deferred value of $35 million.
At closing, SGH will receive an upfront cash purchase price of $137.7 million (81% of $170 million), subject to certain customary adjustments, for 81% of SMART Brazil’s outstanding equity. Eighteen months following the closing SGH will receive a deferred cash payment of $28.35 million (81% of $35 million).
In addition to the upfront and deferred cash payments, SGH will retain a 19% interest in SMART Brazil. During three exercise windows between 2027 and 2029, the parties have a put and call feature for the remaining stake at a put/call price that values 100% of the Brazil business at 7.5x its fiscal year net income. For example, if the put/call were exercised in 2027, the referenced net income would be fiscal year 2026. SGH would receive 19% of such value at, and subject to, the exercise of the put or call.
The transaction is expected to close by the end of calendar year 2023, subject to required regulatory approvals and satisfaction of customary closing conditions.
SGH expects this transaction to be accretive to its non-GAAP gross margins immediately post-closing; for reference, sales for SMART Brazil were approximately $114 million for the first half of SGH's fiscal 2023. In connection with the transaction, SGH expects to recognize a number of one-time items, including transaction-related costs as well as a non-cash charge to operations for the accumulated translation adjustment balance related to the deconsolidation of the operations of SMART Brazil.
