Digital Wine Ventures to acquire Parton Wine Group as nationwide rollout continues

Digital Wine Ventures (ASX: DW8) has entered an agreement to acquire one of Australia’s largest specialist wine and beverage logistics service providers, Parton Wine Group.

Parton is a 14-year-old business with warehousing operations in Sydney, Melbourne and Perth and a loyal customer base of about 225 unique suppliers.

In today’s announcement, Digital Wine said the strategic acquisition is intended to bolster capability, key metrics, revenue and competitive moat of the company’s online beverage platform WineDepot.

Specifically, it expects the total number of cases shipped to increase by 220% to around 87,000 per month, while total order volumes are forecast to lift by more than 150% to almost 30,000 per month.

In addition, the number of unique suppliers on the platform is expected to grow by 60% to 600.

Digital Wine chief executive officer Dean Taylor said the acquisition will greatly enhance WineDepot’s value proposition and help take its service offerings to the next level.

“We believe fast, cost-effective and reliable order fulfilment is the most powerful way to differentiate your customer value proposition and propel sales growth.”

“Up until now, we have relied heavily on third party warehousing and freight providers to support our national logistics network. This model worked reasonably well in serving our customers, but as our business continues to scale, we need more control over how our supply chain is operated – particularly during peak periods when third party networks can become slow and congested,” Mr Taylor said.

He added that having a dedicated fleet of delivery vans and drivers will ensure the company can provide an exceptional experience for trade buyers using its recently launched direct-to-trade online marketplace, WineDepot Market.

“Having direct control over our warehouses, with the ability to offer temperature controlled, cold chain and bonded storage will also help us to acquire major accounts which have eluded us to date.”

“Importantly, moving to a closed loop network provides the physical foundations required to underpin the other products we offer through our technology platform,” Mr Taylor added.

Deal terms

The acquisition is expected to be completed on 30 July.

Consideration for the deal is entirely performance-based through the issue of earn-out performance securities, vesting in two tranches upon the achievement of certain milestones.

The first milestone will be to achieve a minimum annual revenue of $15 million and minimal annual earnings before interest, tax, depreciation and amortisation (EBITDA) of $350,000 within the 2022 financial year.

The second milestone comprises the same minimum revenue and EBITDA targets for the 2023 financial year.

The number of Digital Wine shares to be issued upon the vesting and exercise of achievement of the earn out securities will rise in line with higher performance.

Fundraising

Digital Wine has received firm commitments to raise gross proceeds of $7.5 million, with funds to be used to clear Parton existing liabilities and repay Parton debtor finance, as well as for planned capital expenditure projects and to expand the merged logistics business.

Subject to shareholder approval, the funds will derive from a share placement to institutional and sophisticated investors of 113.46 million shares at an issue price of $0.065 each to raise $7.375 million, in addition to Digital Wine director participation of $125,000.

Blue Ocean Equities has been appointed to act as lead manager to the share placement.

Parton founder will join WineDepot executive team

As part of the acquisition, Parton founder Richard Raddon will join the WineDepot senior executive team as general manager of the logistics division, assisting in the post-merger integration of his business.

Mr Raddon has almost 40 years of experience within the wine warehousing and logistics sector including 21 years working as a warehouse and distribution manager for Southcorp Wines (now Treasury Wine Estates).

Also joining the WineDepot team in the role of national operations manager is his son David, who has 25 years of hands-on logistics and operational experience.

Mr Taylor said the company is excited to become the custodians of the business that Richard and David spent many years building.

“Their track records are impressive, and their extensive experience within the wine industry stacked together with almost 100 knowledgeable, experienced and dedicated staff provides a significant boost to our operational capability,” he added.

WineDepot Market completes second stage rollout in Melbourne

In a separate announcement, Digital Wine revealed it has completed the second stage of its WineDepot Market rollout, opening the platform to Melbourne trade buyers last week.

The Melbourne launch follows Sydney’s rollout in late May.

Mr Taylor said the trade buyers who have engaged with the platform so far are responding “extremely positively” to the proposition.

“The initial take-up that we have seen so far has been very encouraging and provides a clear indication of the latent demand for the unique solution that we’ve created.”

“The chance to move more of their wine purchasing to a single platform, with a single invoice and single credit account, has been highly attractive to venues and retailers,” he added.

WineDepot also set another record, shipping a total of 27,087 cases in June, representing a 344% increase on the volume shipped in June 2020.

In addition, the platform signed up a further 25 supplied to WineDepot Connect, the portal used by suppliers to access WineDepot’s full suite of products and services including Logistics, Market and Direct.