UPDATE: Trilogy shares jump 12% to record on $37M acquisition of CS Company

Tuesday 18th August 2015

Trilogy International shares jumped 12 percent to a record after the skincare products and scented candle maker agreed to buy privately held CS Company, New Zealand's largest independent importer and distributor of fragrances, cosmetics and toiletries, for $37 million in a debt-funded purchase.

The shares rose 17 cents to a record $1.57, making them the best performer today on the S&P/NZX All Index. The stock has surged 118 percent since the start of the year, making it the best performer on the main board over all.

Auckland-based Trilogy will pay $34 million in cash, plus $1.5 million on both the first and second anniversaries of the acquisition, and additional payments on the third anniversary should the business meet profit targets for the 2016 and 2017 financial years, it said in a statement. As at March 31, Trilogy's non-current interest bearing liabilities were $1.6 million as at March 31. The company's facility with the Bank of New Zealand had an upper limit of $9.5 million, according to Trilogy's annual report.

"They're obviously very confident and would probably have had to have the backing of their bankers to be able to fund that with bank debt," said James Smalley, director at Hamilton Hindin Greene. "It's certainly not a low-risk scenario, but you think they would have done significant due diligence before they did it. To also have their bank's confidence to essentially fund it all with bank debt obviously shows the banks are relatively confident."

Meanwhile, falling interest rates also make is a good time to borrow money, Smalley said.

Trilogy, whose brands include skincare range Trilogy and home fragrance brand Ecoya, expects the additional earnings from CS will help fund its future expansion. Business Bakery, which own 48 percent of Trilogy, Business Bakery, is the investment vehicle for 42Below Vodka founders and entrepreneurs Geoff Ross, Stephen Sinclair and Grant Baker, which they used to underwrite Ecoya's $10.1 million initial public offering in 2010.

"You would think it's the Business Bakery and their contacts that have allowed them to get that type of funding and obviously their track record," Smalley said. "But it is a chunky buy for them, and I guess it's one of those ones, if it comes off it could really give them scale. They do say it has impressive warehousing facilities, but basically it looks like they're buying the cash flow."

CS is forecast to make $41 million of revenue and $6.4 million of earnings before interest, tax, depreciation and amortisation in the year ending March 31, 2016. Earnings from CS will contribute to Trilogy from the completion of the acquisition this month.

CS owners, chief executive Ken Millar, chief financial officer Ray Guilford and senior executive Dianne Reynolds, will remain in the business, Trilogy said.

Trilogy also affirmed guidance from earlier this month, saying it expects first-half sales would help lift profit to $3.5 million in the six months ending Sept. 30, from $1.1 million a year earlier. Revenue is likely to exceed $23 million, a year-on-year increase of more than 50 percent, following strong growth across all three of its brands.

BusinessDesk.co.nz

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