Weapons detection technology provider Xtract One announced a fund-raising agreement with the investment arm of Madison Square Garden Sports Corp. under which MSG Sports may eventually own as much as 28 percent of Xtract One’s stock.
The two-part deal includes an initial investment of $6.3 million by the venture-funding arm of MSG Sports, with a follow-on investment of $3.7 million that is conditional on the approval of existing Xtract One shareholders and regulatory approval.
Should the second part of the investment deal go through, MSG Sports would hold “28.12 percent of the issued and outstanding Common Shares [of Xtract One] on a partially diluted basis, based on the current issued and outstanding Common Shares,” according to a press release outlining the deal. Though he would not cite an exact number, when asked about the investment Xtract One CEO Peter Evans did say that if both parts of the deal go through, MSG will own “north of 20 percent” of Xtract One’s stock.
The Toronto, Ontario, Canada-based Xtract One, which is traded on the Toronto Stock Exchange, primarily sells weapons detection technology in the form of walk-through security scanning gates, which do not require people to remove items as they pass through. Though it trails startup competitor Evolv in announced deals in the growing walk-through security scanning market, Xtract One’s SmartGateway is currently being used at the new Moody Center arena on the University of Texas campus, and at the new Acrisure Arena in Palm Springs, among other venues. And last October, Xtract One announced a formal partnership with the stadium ownership and management concern Oak View Group (OVG) under which OVG will be able to offer the Xtract One security scanners to the venues it owns or manages, most likely at a discounted rate.
Cash needed to fuel growth, expansion
In a phone interview this week, Evans said the company needs the investment capital to facilitate growth. Evans, who joined Xtract One in November, 2020, as part of a company pivot to focus on the walk-through security scanning market, said that with its recent deployment deals Xtract One is now “a proven company,” with “brand-name” venues and partners.
Though Xtract One (which changed its name last year from Patriot One) raised $7 million in Canadian dollars in an early 2022 offering, it also recently reported losing nearly $5 million Canadian in the quarter ending Oct. 31, 2022, with $646,806 in revenue and $5,511,027 in expenses, mainly for R&D and personnel costs. Evans noted that trying to raise money in the public markets currently is an expensive venture, which was one reason to seek out a private placement, where “you don’t need an investment banker in the middle.” According to the press release, the $10 million in funding in U.S. dollars is currently worth $13.4 million in Canadian dollars.
In MSG, Evans said, Xtract One was able to find a partner that is aligned with the company’s mission. In addition to the iconic Madison Square Garden in downtown New York, the company is also looking at a Fall opening of its MSG Sphere in Las Vegas, which it calls “the world’s most advanced entertainment destination.”
Though it is hard to find any direct public information on MSG Sports’ investment arm, the Madison Square Garden Entertainment Corp. website does contain a profile of David Dibble, CEO of of MSG Ventures, which it says is a wholly-owned subsidiary of MSG Entertainment. In Dibble’s profile the company says that part of his duties “includes identifying investment and partnership opportunities with companies that are utilizing technologies to redefine the way fans, artists and athletes engage and connect.”
MSG overall, Evans said, “is really on the innovative edge” in regards to using venue technologies. As part of its investment, MSG Ventures has been granted the right to appoint an observer to the Xtract One board of directors, according to the press release.
