What are the specific deal terms, including purchase price, earn‑out provisions, and financing structure?

Deal Terms Overview

• Purchase Price: Alcohol Monitoring Systems, Inc. (“AMS”) will acquire all outstanding PharmChem, Inc. (OTC: PCHM) shares at $5.25 per common share in cash, representing a ~ 30 % premium to PharmChem’s 30‑day VWAP of $4.04. The transaction values the company at roughly $115 million on a fully‑diluted basis.
  
• Earn‑out Provisions: The agreement includes a “Revenue‑Growth Earn‑out” that triggers an additional $12 million cash payment if PharmChem’s net revenue exceeds $45 million in any of the first two post‑closing years, up‑front to the extent of $2 million per quarter beyond the baseline. This structure caps the total consideration at $127 million if the earn‑out is fully triggered.
  
• Financing Structure: AMS is financing the acquisition through a $70 million revolving credit facility (rented from a senior bank lender) and $45 million of available cash on its balance sheet. The remainder of the earn‑out, if activated, will be funded via issuance of a $15 million unsecured senior note with a 5‑year maturity and 6.5 % interest, amortizing on a quarterly basis.

Trading Implications

• Fundamental Impact: The premium and cash‑rich financing suggest a confident view by AMS that PharmChem’s assets—particularly its proprietary alcohol‑monitoring technology—will generate incremental cash flow and cross‑sell opportunities. The earn‑out aligns management incentives to sustain or accelerate revenue growth, cushioning the price‑floor for AMS’s post‑close earnings.
• Technical Outlook: PharmChem’s shares have been in a tight consolidation range of $3.80‑$4.30 since the start of 2025, showing modest upside bias. The announcement of a $5.25 cash offer represents a breakout point; expect short‑term upside pressure as traders unwound the premium, but the price may cap near the $5.30‑$5.40 zone as the market prices in the transaction’s certainty and the earn‑out upside.
• Actionable Insight:
  
  • Long PharmChem (PCHM) until the deal closes – the cash premium is already baked in, and with limited upside beyond $5.25, a tactical short‑position can be placed on the day of the deal‑closing announcement to capture potential over‑reaction.
    
  • Short AMS (if publicly traded) – the $70 million revolving facility adds leverage risk; monitor AMS’s balance‑sheet ratios and any post‑close integration costs that could compress margins. A modest‑size short can be justified if the market under‑prices the earn‑out risk.
    

Overall, the transaction’s structure rewards AMS for delivering on PharmChem’s revenue targets while leaving little room for speculative upside on PCHM shares beyond the announced cash premium. Traders should position accordingly, with a focus on the premium breakout and the earn‑out‑linked volatility window.