Pental acquires Hampers with Bite in deal worth up to $28.3m

Pental acquires Hampers with Bite in deal worth up to $28.3m

Hampers with Bite co-founding director Rory Boyle.

Payday has arrived for the founder of a Melbourne-based e-commerce hamper company that received a "sugar hit" of sales over the past year, with household cleaning products group Pental (ASX: PTL) striking a deal to buy his business for up to $28.3 million.

But Rory Boyle, who co-founded Hampers with Bite (HWB) 17 years ago with his brother Nick, insists he is sticking with the business for the long haul beyond the earnout period that finishes at the end of this financial year.

"Quite frankly, I had no reason to sell for monetary reasons," Boyle tells Business News Australia.

"The reason I wanted to sell was to be aligned with a publicly listed company who’s hungry for growth, and to really challenge ourselves and take it to the next level and really make a company work on the ASX," says Boyle, who for the last two years was a finalist in the Melbourne Young Entrepreneur Awards and one of Australia's Top 100 Young Entrepreneurs.

The rationale for Pental is to diversify its sales channels by fast-tracking its existing e-commerce-led growth strategy, making HWB a "material component" of the business in addition to opportunities to cross-sell its products and bundles.

It is a move with parallels to Maggie Beer Holdings' (ASX: MBH) acquisition of Hampers & Gifts Australia (HGA) earlier this year for $40 million plus an earnout of up to $10 million. That business recorded revenue of $36 million in FY21 and earnings just shy of $9 million.

Boyle's hamper business notched up revenue of $24 million in FY21 with EBITDA of approximately $5.1 million.

The deal struck between HWB and Pental involves $21.3 million to be funded by a mix of cash, debt, a capital raise and a share purchase plan, plus $3 million worth of shares in escrow and an earnout capped at $4 million subject to an EBIT of $6.3 million being achieved in the current financial year.

"Our acquisition of HWB will transform Pental by boosting our financial scale and delivering new capabilities which are highly complementary to our existing business," says Pental managing director Charlie McLeish.

"Through this deal we are welcoming a highly experienced team of e-commerce professionals who have turned HWB into a market leader.

"Beyond its e-commerce infrastructure and expertise, HWB brings us enhanced and efficient distribution capabilities which will allow us to offer customers very convenient delivery options."

McLeish explains the HWB business will boost group revenue by approximately 20 per cent and immediately strengthen profitability.

"HWB will be a 100 per cent Pental owned business and strengthens our position as totally controlling an important new chapter in diversifying our operation," he says.

"We see this acquisition as highly complementary and are excited by what the future will bring us together as we accelerate our push into online channels with improved new product development capabilities."

Boyle says joining Pental is in line with a strategy to grow HWB's addressable market, deepen customer relationships and expand product offerings with a strong platform for growth.

"We have been very impressed with Pental's technical capability and detailed growth strategy. This was a significant factor in our decision to select Pental to acquire HWB," he says.

Boyle adds that negotiations began when Pental approached the company earlier this year.  After presentations were given, the synergies between both companies became apparent to the entrepreneur.

"Pental have made it really clear they want us to continue to run Hampers with Bite the way we’ve run Hampers with Bite in the past," he says.

"Hampers will continue to run independently the way that it has, just under the Pentel banner."

Boyle is also optimistic about performance prospects for the company.

"People talk about COVID sugar hits. From January to August I think we’ve seen 90 per cent growth on the same period last year in sales," he says.

"The numbers we’re doing at the moment are unprecedented, so Hampers with Bite has a lot of ways to grow and diversify. It's a great brand, but I’m also really excited about working with Pental and other projects.

"We sold out of hampers on the 4th of December due to some of the constraints we were dealing with in Victoria with COVID at the time just with the backlog that we had, and I think you’ll see some pretty exciting numbers from Hampers with Bite this financial year because we were severely hampered last financial year when it came to the December-Christmas period."

The acquisition is due for completion in mid-September. Although Pental's market capitalisation is just a bit more than double the potential acquisition value, the group highlights it is in a strong balance sheet position to make the transaction with $12.7 million in cash and no debt.

The upfront consideration includes a $6 million equity raise in which directors plan to participate subject to shareholder approval, plus a $2 million capped share purchase plan (SPP). These raises will be at $0.38 per share, representing a 13.6 per cent discount to the last closing price of $0.44.

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