Vitamins and supplements manufacturer Star Combo Pharma (ASX: S66) is raising capital to fund the acquisition of Australian natural health, food and beauty product company Bio-E Australia Pty Ltd.
The Sydney-based company emerged from a trading halt this morning to announce it has entered into an agreement to acquire 100% of the shares in Bio-E for $60 million, representing more than four times its forecast FY2019 EBITDA of $14.7 million.
Melbourne-based Bio-E is a supplier of locally sourced and natural consumer products including fermented and probiotic drinks, pure Australian honey, natural skincare and health supplements.
The acquisition follows the companies’ recent collaboration on the development and commercialisation of the Sleep Diet pill. This product, aimed at improving sleep and weight loss, has already generated more than $10 million in new orders since its May launch.
The deal also follows Star Combo’s purchase of e-commerce platform Austoyou in February.
Combining Star Combo’s research and development and manufacturing capabilities with Bio-E’s marketing and distribution expertise, this latest deal is expected to drive growth in the 2020 financial year with several product launches in the pipeline.
Star Combo chairman Richard Allely said the acquisition would speed up the company’s transition “from a contract manufacturing business to a fast growth, high margin, branded business”.
“We first met Bio-E when we developed and formulated the new Sleep Diet product for them. Both companies quickly recognised the significant synergies by combining our business and bringing our complimentary skill sets together,” he said.
Mr Allely said the company is expecting to launch up to five new products in the 2020 financial year.
Along with Bio-E’s Sleep Diet pill, Star Combo’s growth is expected to be backed by its own Living Health brand, which is gaining traction in Australia and now China.
“We are excited about the significant growth opportunities that both businesses have going into FY2020,” Mr Allely said.
The upfront consideration for the acquisition comprises a cash payment of $42 million plus the issue of 30 million Star Combo shares at $0.60 per share.
To help fund this, Star Combo is undertaking a capital raising comprising: a $50 million placement to professional and sophisticated investors at $0.55 per share; and a $1 million share purchase plan at $0.56 per share to existing Australian and New Zealand shareholders.
According to the company, Star Combo directors have already committed to taking up $2.7 million in the placement.
Both the placement and issue of shares to vendors is subject to approval at a general meeting of shareholders on 6 August.
By afternoon trade, Star Combo shares were up 15.71% on the news at $0.81.