Shares in Sukin natural skincare business BWX Ltd (ASX: BWX) are locked in a trading halt today after the company announced it is to acquire U.S. facial natural skin care brand Andalou Naturals.
The cost is US$80 million plus potential earn out payments, with the deal priced at 9.4x Andalou's expected FY 2018 EBITDA of US$8.5 million, or 8.4x expected EBITDA including cost savings BWX hopes to extract from the deal.
Investors are being asked to tip in A$100 million to fund the purchase via a 1 for 5.7 equity raising priced at $5.92 per share, which represents a 14 per cent discount to the stock's last closing price of A$6.91.
BWX's management stated this deal signals the end of its recent North American shopping spree, after it also recently bought the US-based Mineral Fusions natural make-up business.
In fairness its management team have taken advantage of a hot streak for the share price over 2017 to let them raise capital on a less dilutive basis.
The question now is whether BWX can deliver a return on invested capital as it attempts to grow profits in the U.S. via a strategy to widen its distribution and sales networks. The end game being to build a US distribution network "capable of supporting the new entry of other BWX brands".
This is a bold ambition and if the company can successfully grow sales of its flagship Sukin products into the U.S, then the acquisitions may pay off handsomely.
Strategies are all well and good in presentations but it's executing them that counts, and for now I would rate BWX as a hold given its risk profile is expanding as it attempts to crack the competitive U.S. consumer market.
Another consumer-focused business growing overseas is Blackmores Limited (ASX: BKL), which is due to release a quarterly sales update at the end of October. Its shares have also been on a hot run as investors anticipate a strong start to FY 2018.
