Cross-border specialist company Jatenergy (ASX: JAT) has revealed its intention to acquire a controlling interest in Green Forest International, a Sydney-based wholesaler, distributor and exporter to Hong Kong and mainland China.
Jatenergy offers a unique capacity to both Australian companies seeking brand representation in China in addition to Chinese platforms and distributors seeking Australian products.
The deal to take a controlling stake in Green Forest allows Jatenergy to boost its commercial momentum given the complementary nature of the two respective businesses.
Jatenergy said it would pay A$2 million in cash plus 40 million fully paid ordinary shares. A further earnout payment will be made to the vendors of Green Forest based on the net profit before interest and tax over the coming 12 months.
The acquisition deal must still be ratified by shareholders, but if approved, would also see Jatenergy and the vendors each contributing A$2 million in additional working capital to fund the expansion Green Forest’s operations over the coming year.
“We have very strong relationships with the major sales platforms in mainland China, like TMall and JD, and directly with major retailers like Shanghai Dragon, and of course we are developing our own product ranges. Green Forest is very strong in Hong Kong and in Australian daigou and duty-free stores and they bring a large portfolio of Australian and international brands to the group. It is also a part of the Jatenerfy strategy for developing of its FMCG distribution and sales channel,” said Mr Wilton Yao, executive director of Jatenergy.
The acquisition is also expected to provide Jatenergy with additional sales channels for its own products and several potential brand collaborations over time.
Green Forest sells to more than 50 shops and pharmacies in Hong Kong, over 200 gift shops, duty-free stores and daigou warehouses in Australia, as well as serving as major suppliers to Chinese TaoBao and Wechat channels.
Buying into daigou
Green Forest’s Hong Kong and China-based customers are responsible for all Hong Kong and Chinese customs clearance, duty and import licences.
Importantly, Green Forest is not required to obtain licences or regulatory approvals for its sales to Hong Kong and China. The products exported by Green Forest include internationally-renowned consumer favourites such as Swisse, Blackmores, Life Space, Lucas, Nutrition Care, Nature’s Way, Royal Nectar, Ostelin and Healthy Care.
Green Forest also distributes products items that have recently made headline news in Australia for their rampant demand and high margin capability, including milk powder brands such as A2, Aptamil, Bellamy’s, Caprilac and Maxigenes. Green Forests’ exclusive brand range includes Thermos, Camelbak and Sunday Afternoons.
In the last 6 months of last year, Green Forest earned $25.1 million in sales revenue and generated a profit of almost $2 million, which represented a 153% year-on-year increase compared to the previous year.
According to Jatenergy, its board of directors are confident that the acquisition will help the combined businesses to achieve significantly higher growth rates and profitability and lead to the company achieving significant and constant cash flow.
With its acquisition now announced, Jatenergy said that a meeting of shareholders to approve the issue of shares to Green Forest is expected to be held in “late June or early July 2018.”
In the meantime, investors received the news positively and helped to take Jatenergy shares up to $0.16 per share, up around 15% on the day.