Investing.com -- In February, Lithium battery and clean metals recycling company Aqua Metals Inc. (NASDAQ: AQMS) entered into a term sheet to acquire smart energy platform Lion Energy. With the deal expected to close in Q2, we speak with Aqua Metals CEO Steve Cotton on the synergies between the companies, how this acquisition transforms the business, as well as dilution risk for shareholders versus long-term value creation.

What’s the strategic rationale behind acquiring Lion Energy now, and how does it reshape your long-term growth profile?

The U.S. battery storage market is growing at over 30% annually, with utility-scale deployments up 66% in 2024, creating an urgent need for domestic, secure battery supply chains. Lion Energy provides immediate revenue of approximately $50 million while giving us a commercial platform to manage the entire battery lifecycle under one roof.

We’re transforming from a pure recycling technology company into a comprehensive domestic power player spanning manufacturing, deployment, intelligent management, and material recovery. This positions us across three high-growth areas simultaneously: energy storage systems, battery manufacturing through American Battery Factory, and critical minerals recycling.

Lion brings roughly $50 million in revenue - how should investors think about the combined entity’s revenue mix and growth path? Also, given the all-stock nature of the deal, how should shareholders think about dilution versus long-term upside?

Lion’s $50 million revenue base provides immediate scale and establishes multiple revenue streams across hardware, software, and services that can grow alongside our recycling operations.

The all-stock structure preserves cash while aligning incentives, with Lion owners receiving approximately $25.8 million at closing plus up to $65 million in performance-based earnout shares tied to revenue and EBITDA over 12 months post close of the transaction. We’ve maintained executive and board control to ensure continuity of strategy and execution. When you consider we’re gaining a growing business with proprietary technology in a market expanding at 30%+ annually, plus strategic positioning across the battery value chain, the long-term value creation significantly outweighs near-term dilution.

You’ve emphasized vertical integration from deployment to end-of-life recovery - what specific advantages does that give you versus traditional battery OEMs or standalone software providers?

We gain visibility and control across the entire battery lifecycle that no traditional OEM or software provider can match, from deployment through operational life to material recovery. Lion’s software provides real-time intelligence on battery performance and degradation across thousands of systems, feeding directly into optimizing our recycling processes. We can offer customers something OEMs can’t: a true circular solution with guaranteed end-of-life management and material recovery, which becomes increasingly valuable as sustainability becomes regulatory and competitive necessity. Economically, we capture value at multiple points - initial system sale, ongoing software and services revenue, grid services and VPP participation, and material recovery - while traditional players only capture one or two of these.

Lion’s software opens the door to virtual power plant (VPP) participation - how meaningful could VPP and AI-driven energy optimization become as revenue drivers over the next few years?

VPP and AI-driven optimization represent some of the most exciting growth opportunities in this transaction, particularly as we scale our deployed base of systems into an intelligent, grid-responsive network. Grid operators and utilities are increasingly willing to pay for demand response, load balancing, and other grid services as they manage renewable integration and peak demand without building new generation.

The AI data center opportunity is particularly compelling given their enormous power requirements and our proven experience scaling integrated battery platforms for major data center operators. I’d expect VPP and software-driven services to evolve from modest contributors initially to meaningful, high-margin recurring revenue streams as quantity of deployed systems grows.

Operationally, what are the biggest execution challenges in integrating hardware, software, and recycling into a single platform, and how are you planning to manage them?

The primary execution challenge is integrating two companies with different operating models into a more unified platform while maintaining the speed and customer focus that have driven each business. We see strong synergies between the two management teams, allowing us to enhance organizational capability across both Lion’s hardware business and Aqua’s recycling platform, while preserving the momentum Lion has built in its products and customer channels.

The opportunity, and complexity, is connecting hardware, software, and recycling into a coherent system by aligning product roadmaps, enabling data visibility across deployed systems and end-of-life recovery, and coordinating go-to-market around circular energy solutions. A key enabler of that strategy is our ownership stake and supply/offtake agreement with the American Battery Factory gigafactory planned for Tucson, AZ which helps anchor and demonstrate the loop from materials through manufacturing to deployment and recycling.

The second challenge is disciplined capital allocation across multiple growth priorities, balancing near-term revenue and profitability with longer-term platform value. My experience scaling integrated energy systems gives me confidence in execution, and we’re targeting a Q2 2026 close to allow for thoughtful integration planning.