ASX-LISTED complementary medicine manufacturer, Star Combo, has entered a purchase agreement with Melbourne-based natural health, food and beauty business, Bio-E for $60 million.
The deal will see a $42 million cash payment, plus 30 million Star Combo shares, valued at $0.60 per share, representing a purchase price of 4.1 times Bio-E's earnings before interest, tax, depreciation and amortisation (EBITDA).
Star Combo said the decision to buy Bio-E was in line with its strategy to grow its branded sales and product capability, providing "an opportunity to combine the strong (TGA licenced) manufacturing and product development capabilities of Star Combo and the marketing and distribution expertise of Bio-E".
The two companies have been working in collaboration to produce a "sleep diet" product "aimed at improving sleep and weight loss", which has generated more than $10 million-worth of orders since its launch in May, Star Combo Chair, Richard Allely said.
"This is a transformational acquisition for Star Combo and accelerates our transition from a contract manufacturing business to a fast growth, high margin branded business," he said.
"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 bring our complementary skill sets together.
"Star Combo's Living Healthy brand is gain traction in Australia and is now on shelves in China...and we are expecting to launch up to five new products in FY20."
The company is undertaking a capital raising exercise to fund the cash component of the deal, with a $50 million placement of professional and sophisticated investors at $0.55 per share, and a share purchase plan to raise a further $1 million at $0.56 per share to existing Australian and New Zealand shareholders.
Star Combo is a significant supplier to TerryWhite Chemmart, having last year signed a strategic marketing and supply agreement with the network for the Living Healthy supplement brand, which is exclusively available at over 450 TWC stores nationwide.
The agreement with TWC includes a requirement that each pharmacy "prominently feature" Living Healthy products, and includes $10 million in marketing contributions over four years, including sponsorship of the TWC annual conference (PD 16 May 2018).
Bio-E's lead product is "Lemon + Manuka" with Star Combo noting the company's "deliberate focus on working with local Australian/Chinese distributors to land product in China through legitimate channels," rather than relying on the higher risk Daigou market.
The above article was sent to subscribers in Pharmacy Daily's issue from 10 Jul 19
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