This morning, natural cosmetics company – owner of the Sukin brand of cosmetics – BWX Ltd (ASX: BWX) announced that it had acquired Mineral Fusion, the number one natural cosmetics brand in the USA.
The acquisition is expected to give BWX the distribution network to start selling its own Sukin brand in the much larger US market.
Mineral Fusion was acquired for US$38.4 million plus a potential earn-out of US$4.6 million, for a price of approximately 11 times earnings before interest, tax, depreciation and amortisation (EBITDA). Mineral Fusion is expected to deliver US$24 million in revenue and US$3 million to US$4 million in EBITDA for calendar year 2017.
BWX will fund the acquisition via taking on more debt.
Following the acquisition, BWX hopes to expand Sukin into the US and may also consider bringing the Mineral Fusion brand to Australia. Online sales in the US look like a promising opportunity, with 10% of Mineral Fusion's sales coming from online, although this figure has been growing at 50% per annum for the past 3 years.
Mineral Fusion appears to be an expensive foray into the USA. 11x EBITDA is a high price that implies significant growth or advantage to be conveyed to BWX, although BWX itself is priced at around 20x EBITDA.
This is the first meaningful debt that BWX is taking on, and it appears to be manageable. I would pay greater attention to the company's growth prospects, as this is the most crucial area to evaluating whether an investment in BWX today is likely to be worthwhile.
In my view, today's price implicitly assumes that earnings are going to double in the next ~3-5 years and that there is further growth available beyond that. With expansion into the UK and now the USA underway, the potential appears to be there and this is where I would focus my efforts if I were researching the company today.
