Luna Innovations – a global leader in advanced fiber optic-based technology – recently announced a $50 million investment by White Hat Capital Partners, an investment firm focused on sustainable value creation in technology companies serving mission-critical applications. The proceeds from this strategic investment were partially used to fund the acquisition of Silixa and related transaction costs in the aggregate amount of approximately $25 million.
The remaining proceeds were used to repay the company’s outstanding $17 million term loan with PNC Bank and strengthen the company’s balance sheet.
Luna expects to apply the proceeds of this investment across various initiatives already in process to accelerate growth and increase profitability, including:
1.) The aging infrastructure and rising security concerns for pipelines and critical infrastructure have led to increased market adoption of fiber optic sensing technologies for structural health monitoring. And Luna is well-positioned to implement its solutions and drive recurring revenue through continuous monitoring of these key assets, such as bridges, tunnels, and pipelines.
2.) Luna cultivated strategic relationships with several large global customers who are now expanding their use of Luna’s solutions, increasing demand for Luna’s products.
3.) Luna plans to leverage its increased financial flexibility to execute against its robust product roadmap and continue to be a leading developer of innovative technologies with new applications, building upon its already large library of intellectual property.
David Chanley joined Luna’s Board of Directors in connection with the strategic investment. Chanley is a Co-Founder and Managing Partner of White Hat and has more than 20 years of experience in the technology sector. With this addition, Luna’s Board expanded to eight members.
Investment Term Summary
White Hat initially purchased 52,500 shares of Series B convertible preferred stock at a purchase price of $50 million. And each share has an initial liquidation preference of $1,000 per share and, subject to certain conditions and limitations, will be convertible into shares of Luna common stock, beginning one year from issuance, at a conversion price of $6.70 per share, representing a 10% premium to the company’s 30-day volume-weighted average price.
The preferred stock will accrue quarterly dividends payable at the company’s option, at either an 8.5% annual rate if paid in cash or a 10% annual rate if paid in kind. Until December 21, 2026, White Hat will have the right to purchase up to an additional $12.5 million of Series B convertible preferred stock at par and otherwise on the same terms.
Cooley LLP acted as legal advisor to Luna, and Schulte Roth + Zabel LLP acted as legal advisor to White Hat in the transaction.
Silixa Acquisition
Silixa is a UK-based leader in distributed fiber optic sensing solutions. The deal further propels Luna’s position in the fiber optic sensing market, adding capabilities in distributed acoustic sensing (DAS), distributed temperature sensing (DTS) and distributed strain sensing (DSS) that offer enhanced performance for applications in energy, natural environments, mining and defense.
Silixa is expected to achieve about $30 million in 2023 revenue, representing approximately 15% annual growth on a constant currency basis. And the purchase price consists of $21.5 million in upfront cash consideration and up to an additional $16.5 million in earnouts payable in 2025 upon the achievement of certain 2024 financial performance milestones. The deal was funded with a portion of the proceeds from White Hat Capital Partners’ strategic investment in Luna, which was also announced today. Inclusive of modest cost synergies, the acquisition is expected to be accretive to non-GAAP earnings in the first year.
These are the benefits of the deal:
— Silixa’s highly complementary portfolio of sensing technologies and monitoring capabilities augments Luna’s current product portfolio. Silixa advances Luna’s solutions-based offerings with highly integrated monitoring and real-time data solutions that yield valuable insights and drive recurring revenue.
— Silixa not only provides Luna access to emerging end markets, such as carbon capture and geotechnical monitoring, but also adds incremental capabilities and geographical reach within key existing end markets, such as energy and mining.
— Along with greater financial and operational scale, Silixa brings proprietary sensing technologies, expanding Luna’s industry-leading patent portfolio to nearly 1,000 with the addition of Silixa’s 200+ patents. And Silixa’s established presence in the U.K. adds significant talent in sales, marketing, engineering and R&D, helping to round out Luna’s EMEA organization.
Key Quotes About Funding
“We are thrilled to welcome White Hat as a new partner. David and his team bring years of experience advising and supporting technology companies, particularly in the optics and test & measurement industries. When I first met them, I was struck by how well they understood both our industry and our technologies. Their investment is not only a vote of confidence in the acquisition of Silixa, but also a strong endorsement of our strategic vision and market opportunities.”
— Scott Graeff, President and Chief Executive Officer of Luna
“White Hat is excited to partner with the Luna management team to support the Company in its next stage of growth. Our thorough evaluation highlighted the quality and depth of Luna’s management team and the promising addition of the talented team from Silixa. With additional scale and financial flexibility, Luna is uniquely positioned as the largest pure-play company to address the rising demand for fiber optic sensing solutions in its key end markets. These include pivotal roles in energy transition initiatives like carbon capture and storage (CCS) and electric vehicle (EV) adoption, as well as critical structural health monitoring and specialized aerospace & defense applications. We are eager to partner with Luna as the company accelerates its mission of enabling the future with fiber.”
— David Chanley, Managing Partner at White Hat Capital Partners
Key Quotes About Silixa Acquisition
“The addition of Silixa not only elevates the portfolio of solutions we already offer in our key end markets, but also further strengthens our position as an enabler of energy transition by extending our reach into exciting new growth sectors, such as carbon capture and storage, as well as into monitoring processes that will help sustain ecosystems and safeguard fragile environments. Silixa brings important technology capabilities and strong talent that we expect to leverage across our EMEA footprint, which we expect will drive profitable growth across our European enterprise.”
— Scott Graeff, President and Chief Executive Officer of Luna
“Today’s announcement is a pivotal milestone in the history of Silixa and a testament to the hard work and dedication of our employees. We’re thrilled to be joining a company that shares our focus on innovation and our passion to provide solutions to some of the world’s most critical challenges,” added Glynn Williams, CEO at Silixa, who will remain as an advisor to Luna through 2024.”
— Co-Founders Mahmoud Farhadiroushan and Tom Parker, who are both continuing with Luna
