The goal, Neptune CEO Jim Hamilton said, is to provide more complete service to its customers. This is the first step onto the formulation side of the aisle for Neptune, which pioneered krill oil as a dietary ingredient and did much of the early scientific work. The capabilities of Biodroga and its client list made it a good fit for Neptune, Hamilton said.
“It is all about the services they offer,” Hamilton told NutraIngredients-USA. “A good analogy for me is to look at IBM. At first, IBM was all about the hardware, and then they realized it was more about the services they could offer. Biodroga sits down at the table with marketers and says, let us help you be successful.”
Hamilton said Biodroga has scientific, manufacturing and regulatory expertise. The acquisition will help Neptune respond more effectively to what he sees as an increasing fragmented market.
“I think we are seeing this in the major food markets. There is a fragmentation happening with the consumer. There are so many ways to communicate with these communities and deliver products to them. Big marketers are having trouble coping. Look at Coca Cola,” Hamilton said.
“I think the same is true of supplements. There are a lot of small marketers who are interested in appealing to these niches, and Biodroga enables that. They help companies be more agile,” he said.
The deal will help Neptune fully utilize the output of its extraction facility in Sherbooke, Quebec. The facility was destroyed by fire in November, 2012. The plant is now fully restored and back to full production.
Terms of deal
Under the terms of the purchase agreement, Neptune acquired 100% of the issued and outstanding shares of Biodroga for $10.6 million ($15 million CDN), consisting of about $5.3 million paid in cash at closing, an additional cash consideration of about $2.7 million bearing interest and payable over a period of three years and about $2.7 million worth of Neptune common shares issued at closing, representing approximately 2.6 million shares. These shares are escrowed and will be released over a period of three years. This represents a transaction multiple of approximately 5X Trailing Twelve Months (TTM) EBITDA.
Neptune funded the cash portion of the purchase price payable at closing through a recently secured $5.3 million bank loan, in addition to a revolving line of credit of $1.3 million available to support Biodroga’s growth. Furthermore, Neptune invested about $700,000 in the capital of Biodroga, which shall be considered as restricted cash until released by the Bank.
For the TTM ending October 31, 2015, Biodroga had revenues of approximately $15.6 million and EBITDA of approximately $2.1 million. “Over the past three years, Biodroga has surpassed industry and segment revenue growth rates and we expect this trend to continue going forward,” stated Mario Paradis, Neptune’s CFO.
Considering Neptune’s revenue expectations of $3.6 million for the third quarter ending November 30, 2015 and excluding intercompany sales, the combined entity is expected to have annualized sales of close to $30 million on a pro forma basis.