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Specialty retailer Dusk Group (ASX: DSK) is firing up its share of the fragrance candle market with the $28 million acquisition of Eroma Group.
The deal for the national candle materials supplier will help Dusk expand its online operations and extend the range and geographical reach of the company’s business.
Eroma CEO and founder Shane McGrath will continue leading the company as a standalone business while becoming a substantial shareholder of Dusk once the deal settles. McGrath owns 55 per cent of Eroma and will emerge with more than 3.5 per cent of Dusk.
The $28 million acquisition values Eroma at five times FY21 EBIT. The company posted FY21 sales of $30 million and pro forma EBIT of $5.6m, and, significantly, 65 per cent of its sales in FY21 were online.
Eroma supplies a complete range of home fragrance component parts, candle-making kits and bath and body products. About 95 per cent of orders are placed online, a third of which are transacted by customers in the showroom and co-located warehouses.
Eroma has more than 30,000 active customers and with showrooms, blending facilities and warehouses in Sydney, Melbourne, Gold Coast and Perth.
Dusk plans to fund the acquisition through $10 million in debt, $7 million from existing cash reserves and the issue of $13 million in Dusk shares, representing about 6.5 per cent of the company’s shares on issue.
“Eroma is the largest player in a fragmented segment of the home fragrance market,” says Dusk CEO Peter King.
“Its management team, led by Shane, have built a n impressive business with a strong track record of growth and a clear and differentiated formula for success.
“The acquisition enlarges our position in the home fragrance market. It substantially increases the scale of our online operations.”
Dusk says the acquisition will be ‘highly’ earnings-per-share accretive in the first year.
“This transaction affords us the opportunity to more fully vertically integrate our sourcing and distribution operations and gives us scope to share certain group resources to enhance performance of both businesses,” says King.
The acquisition is expected to settle on January 31, 2022.
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