Pure Foods Tasmania (ASX: PFT) is actioning its charted growth strategy, revealing plans to buy the business and assets of Daly Potato Company for $1.8 million.
The company listed on the ASX in April after raising $3.5 million through a public offer with funds intended to acquire synergistic or complementary food and beverage businesses in Tasmania.
Its existing premium food businesses include Tas Pate and Woodbridge Smokehouse (smoked salmon and trout).
Daly Potato Company emerged from a 30-year-old farm owned by the Daly family on Tasmania’s southeast coast. Its premium potato salads are sold to major supermarket chains including Woolworths, Coles and Metcash with sales growing in the last three years from $211,000 to $2million.
Pure Foods revealed the pair have been in talks for some time regarding a possible merger but discussions were non-committal until now, when Daly was at the crossroads between continuing to manage its burgeoning business or invest heavily to meet increasing national and international demand for its products.
Pure Foods managing director Michael Cooper said the acquisition cements the company’s strategy of moving into new food categories.
“Meal solutions is a $1 billion market in Australia alone, and we also see a large opportunity to support our Asian customers with unique 100% Tasmanian-based meal solutions,” he said.
“This acquisition also brings many synergies including customers, administration and supply chain benefits as well a range of new products that will be added to our new online store for our loyal consumers to enjoy,” Mr Cooper added.
Pure Foods today announced a heads of agreement to acquire Daly for a mixture of cash and shares. Specifically, shares to the value of $1.4 million (representing about a 4.44% shareholding) will be escrowed in three equal tranches over a three-year period, plus Pure Foods will take on about $300,000 of Daly’s current debt and pay the Daly family $100,000 in cash on settlement.
The deal is subject to certain conditions including final due diligence and Pure Foods entering into a potato supply agreement with the Daly farm.
The company has also agreed to additional investment to support ongoing product development and “commensurate capital expenditure”. This includes around a $250,000 investment in plant and machinery to support the launch of new products.
There is a sunset clause for the settlement of 30 October but Pure Foods said it expects to complete the acquisition before this date.
According to Pure Foods, Daly is expected to be earnings per share (EPS) accretive from the 2022 financial year and onwards.
New products and future plans
Pure Foods said it will benefit from an array of new Daly products planned to be launched nationally this financial year, as well as a portfolio of products in the development stage.
“Notably, mayonnaise is produced in-house for all Daly products and potentially is the basis for a range of new premium mayonnaise-based products,” the company stated.
Pure Foods believes there is strong international demand for Daly’s products, particularly in Asia, and will seek to attain an export licence for this.
It said it has also planned “significant” capital investment over the next several years with a view to increase efficiencies, boost productivity and grow margins.