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Daly Potato Company acquired by Pure Foods Tasmania Limited

Daly Potato Company acquired by Pure Foods Tasmania Limited

Pure Foods Tasmania Limited (ASX: PFT) is pleased to announce it has agreed to buy the business and assets of Daly Potato Company Pty Ltd (DPC) for USD 1.8M with a mixture of cash and shares, subject to working capital adjustments.

PFT has signed a binding Heads of Agreement (HOA), subject to a number of conditions including final due diligence, PFT entering into a potato supply agreement and other customary conditions. PFT has also agreed to additional investment to support ongoing product development and commensurate capital expenditure.

Michael Cooper, PFT's Managing Director :

“This is a great opportunity for PFT shareholders as it cements our strategy of moving into new category's.”

“As stated in previous updates, meal solutions is a USD 1Billion market in Australia alone and we also see a large opportunity to support our Asian customers with unique 100% Tasmanian-based meal solutions.”

“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.”

Transaction highlights

The deal is structured as follows:

  • Shares to the value of USD 1.4M will be escrowed in three equal tranches – one third to be available for release in intervals of 12 months; 24 months and 36 months.
  • Based on a share price of 61.4c, being the 14-day VWAP up to and including 7 September 2020, PFT will issue DPC 2,279,608 shares, representing 4.44% of the total number of PFT shares on issue.
  • PFT will take on ~USD 300,000 of debt currently on DPC’s balance sheet and relating in the main to plant and equipment and pay the Daly family $100,000 in cash on settlement.
  • Susie Daly has been offered a minimum three-year employment contract.
  • Susie and Gerard Daly or their related entity have agreed a potato supply contract with an agreed price, for five years with a five-year option to extend and with price increases subject to the CPI (but with no negative adjustments).
  • Additional investment in plant and machinery, is required to support the launch of a number of new products. The immediate cost is estimated to be around USD 250,000.

The acquisition meets a number of key metrics for PFT and merges two businesses that are both strategically and operationally aligned and service the same core retail customers. Notably:

  • The DPC business recorded USD 2M in sales revenue in FY20.
  • It adds new products to PFT's product range, including vegan options
  • PFT benefits from an array of new products that are planned to be launched nationally this financial year, as well as a portfolio of new products that are 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.
  • There is also numerous new product development opportunities through complementary meal solutions using our full suite of products
  • DPC doesn't currently have an export licence and PFT believes there is strong international demand for DPC's products, particularly in Asia and will seek to attain an export licence for DPC.
  • Significant capital investment is planned over the next several years with a view to increasing efficiencies, boosting productivity, and growing margins. DPC is expected to be EPS accretive from FY22 and onwards.
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