Urban-Gro Continues Expansion with DVO Acquisition

As the hydroponics industry has contracted, urban-gro, Inc. (Nasdaq: UGRO) has found other ways to grow. After the market closed on Thursday,  urban-gro announced it signed a binding letter of intent (LOI) to acquire Texas-based engineering firm Dawson Van Orden, Inc. (DVO) in a deal valued at $7.25 million. The accretive deal is expected to close in the fourth quarter of 2022. DVO generated approximately $5.5 million of revenue and greater than 20% EBITDA in the trailing twelve-month period that ended September 30, 2022.

DVO is said to have significant experience in  Controlled Environment Agriculture or CEA. Urban-gro also described DVO as having mechanical, electrical, and plumbing engineering services. In addition, the company will add fire protection engineering expertise and further urban-gro’s industrial architecture capabilities. Urban-gro said the enhancement of these offerings is expected to create new opportunities, as well as build upon DVO’s existing contracts and clients in the indoor CEA and industrial sectors.

“The addition of DVO represents an extraordinary opportunity to add depth and breadth of indoor CEA engineering expertise to our professional services offering,” said CEO Bradley Nattrass. “While this accretive and synergistic transaction increases our professional services revenues and margins along with future opportunities to leverage their existing clients, it also immediately adds a deep bench of talent and an engineering leadership structure to scale and meet the rising demand for our turnkey design build solutions. Furthermore, I’m excited about the opportunity to continue strengthening our presence in Texas, as we expect the state to be an influential future business opportunity as Cannabis legalization is considered.”

Urban-gro said it will fund the $7.25 million transaction, which includes a contingent consideration of up to $1.1 million paid in cash or equity at the company’s discretion, through a combination of $1.3 million in cash, a seller’s note of $3.8 million paid out over four quarters, and $1.1 million of UGRO common stock at a pre-set price of $4 per share.

Emerald Acquisition

The DVO acquisition follows the acquisition of Emerald Construction Management in the second quarter. That deal positioned urban-gro for a full turnkey design-build solution where the company provides a single point of responsibility, and manages architecture, engineering, cultivation design, construction, as well as equipment procurement and integration.  urban-gro’s leading, in-house professional services team provides design-build solutions for cultivation facilities, retail dispensaries, and various building types within the industrial and healthcare sectors.

The company said in a statement earlier this week that the incremental design-build contracts represent more than $50 million of signed projects in the third quarter and are from a diverse set of clients including cannabis CEA clients, as well as leading global consumer packaged goods enterprises.  Design-build contracts are typically recognized over a timeline of 6 to 24 months and are separate from any associated professional services or equipment system orders.

Nattrass said, “Client interest and engagement in our turnkey design-build capabilities have continued to progress as expected, and these new contracts demonstrate tangible value for urban-gro and our clients. While we are reiterating our third quarter guidance, the momentum we have established entering the fourth quarter gives me great confidence that the investments we are making in the business are positioning urban-gro for sustainable and consistent global growth over the long-term.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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