New Zealand-founded Keytone Dairy (ASX: KTD) is launching a capital raise to fund plans to scale and diversify its business with the acquisition of Australian dairy powder and UHT drink manufacturer Omniblend.
The company today announced it has entered into a binding agreement to acquire 100% of Omniblend for $22.6 million, comprised of a purchase price of $10 million in Keytone shares to Omniblend vendors, $8 million in cash on completion, as well as the settlement of Omniblend’s existing debt of $4.6 million.
To fund the acquisition, Keytone has launched two capital raising initiatives – a placement of up to $8 million to institutional and sophisticated investors and a $10 million share purchase plan, both being offered at $0.43 per new share.
Omniblend is a leading Australian manufacturer of dry powder and long-life UHT drink products, servicing top health and wellness companies including Optislim, Atkins, Tony Ferguson, Muscle Milk and infant formula brand Bellamy’s Organic, as well as discount supermarket chain Aldi.
Keytone chairman Peter James described the deal as a “compelling and transformational acquisition” for the company, which is expected to bring a substantial boost in revenues and earnings base.
“The acquisition offers scale and diversification to Keytone’s existing business, with a depth of product offering and manufacturing expertise and capability,” Mr James said.
“The Omniblend customer base includes a range of highly credible Australian and foreign contract manufacturing clients and the combined company will be substantially diversified, both in terms of its product mix, and in terms of its geographic markets and customer base,” he added.
In addition, Mr James said the acquisition would provide Keytone with an “early mover advantage” in China’s health and wellness sector.
The company has recently been focused on growing its presence in the Chinese market. Just three weeks ago, it signed a deal to manufacture and supply a range of milk powders for the Walmart-owned Sam’s Club stores in the country.
“We believe that the combination of Keytone’s existing Asia and China sales channels, export-oriented brand and capital reserves, with Omniblend’s scale, breadth of product range, highly automated manufacturing facilities and proven customer relationships will produce substantial cross-sell synergies,” Mr James said.
Earn-out potential for Omniblend
According to Keytone, Omniblend is expected to realise revenues of $29.7 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.24 million for the 2019 financial year.
Along with the $22.6 million price tag, the purchase agreement includes an earn-out consideration dependent on increases in Omniblend’s performance over the next three years.
Upon the achievement of each of three financial milestones, issued performance shares will convert into 23.3 million Keytone shares, representing $10 million at the offer price.
These milestones are: if Omniblend achieves $2.6 million EBITDA in a given year within the first two years of acquisition completion; if Omniblend achieves $50 million in annual revenue within three financial years of acquisition completion and provided Keytone’s share price maintains a volume weighted average price (VWAP) of at least $0.65 per share; and if Omniblend achieves $100 million in annual revenue and $7.5 million in annual EBITDA within three financial years of completion and provided Keytone’s share price maintains a 30-day VWAP of at least $1 per share.
Completion of the acquisition is conditional upon the satisfaction of conditions precedent, which include Keytone’s ability to raise at least $8 million under the share purchase plan and placement.
The acquisition agreement also calls for Omniblend founders Danny Rotman and Arie Nudel to join the board of Keytone, subject to shareholder approval.
“Danny and Arie have successfully and profitably run Omniblend since its inception and bring a wealth of experience and expertise in the sector,” Mr James said.