Bubs Australia has secured a deal to acquire Australia Deloraine Dairy, a Melbourne-based infant formula producer that meets regulatory import conditions into China.
The consideration includes AUD 25 million ($17.8 million) in cash and AUD 10 million ($7.1 million) in Bubs shares. If certain performance targets are met, further payments of up to AUD 15 million ($10.7 million) will be paid to Deloraine over the next three years.
Bubs first entered a manufacturing agreement with Deloraine in June 2018 to produce Bubs goat milk infant formula and CapriLac goat milk powder products. Its Melbourne facility has the capacity to process 10 million tins of formula with its existing production line and could double capacity with capital expenditure in the future if required.
Kristy Carr, Bubs Australia founder and CEO, said the deal “represents an important step” in the firm’s vision to expand in China.
“Importantly, the acquisition will have a significant positive impact on our business through a material reduction in our production costs, as well as placing Bubs in the best possible position to achieve SAMR (State Administration for Market Regulation) brand registration to enable the company to export their infant formula products to China to be sold in physical mother and baby stores.”
Kristy Carr, Bubs Australia founder and CEO.
She added: “We believe this is a win-win all round – for Bubs and Deloraine’s customers, suppliers, relationship partners and employees alike. In the meantime, we don’t intend to change any material aspect of the Deloraine business or the customers it already serves. Deloraine’s principal and general manager will continue the day-to-day management of the business as a full-time employee of Bubs.”
The announcement comes a month after Bubs said it will form a joint venture with dairy company Beingmate to sell its portfolio of infant formula and baby food products in China. Under the proposed venture, Bubs will supply its products to Beingmate’s distribution network, which covers 30,000 stores throughout China.
Bubs has also revealed it has entered into an agreement for a private share placement with private equity firm C2 Capital Partners, which will raise approximately AUD 31.4 million ($21.3 million). Funds from the capital raising will be used, in part, for the Deloraine acquisition.
C2 will ultimately hold a 15% stake in Bubs and the firm’s managing partner Steve Lin will join the Bubs board as a non-executive director.
“We have been very impressed with the important milestones that Bubs has achieved in Australia and China,” said Lin. “We see great potential in China for Bubs, an authentic Australian brand that is building on a sophisticated vertically integrated supply chain and high-quality and trustworthy infant nutrition product portfolio. We are pleased to partner in its financial underpinning and look forward to contributing impactful strategic value.”
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