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Adairs share price rockets higher on $75.5 million Mocka acquisition

James Mickleboro
M&A Letters

The Adairs Ltd (ASX: ADH) share price has zoomed higher this morning following the announcement of an acquisition.

At the time of writing the homewares retailer’s shares are up 18% to $2.09.

What did Adairs announce?

This morning Adairs announced that it has entered into a binding agreement to acquire all of the shares of Mocka Limited for a notional initial enterprise value of ~NZ$80 million (A$75.5 million).

Mocka is a highly efficient, vertically integrated and profitable pure-play online retailer of home and living products operating in both Australia and New Zealand. It has a strong track record of growth, attractive margins, and high levels of profitability and cash generation.

The family-owned business was founded in 2007 and sells well-designed, functional and stylish products in the Home Furniture & Décor, Kids, and Baby categories.

All its products are designed and developed in-house, which allows for a unique product offering. It distributes its products from two distributions centres in Brisbane and Christchurch and has dedicated functional teams in both countries.

What are the financial highlights?

The acquisition price implies an EV/EBIT multiple of 8.7x FY20 EBIT pre-synergies.

It will increase Adairs’ online revenue to ~29% of total revenue and is expected to be accretive to FY 2020 pro forma revenue growth and EBIT margin. The acquisition is also expected to deliver pro forma FY 2020 EPS accretion of ~10%.

Adairs managing director and CEO, Mark Ronan, said: “Mocka is a highly complementary and attractive acquisition for Adairs. We have shared DNA in that we are both design-centric with in-house product design and development which allows us to offer our customers high quality “design led, value for money” differentiated product. Importantly, this also means we have significant control of the vertical supply chain and in market pricing. Finally, we are each highly customer centric organisations, with a passion for great service.”

“We see many opportunities for Adairs to add value to an already successful business. Our knowledge and experience of the home market will allow us to help management further develop the Mocka brand, especially in Australia, and support the Mocka team to continue to deliver growth,” he added.

The acquisition will be funded through a combination of its debt facilities and the issue of ~3.2 million shares to the vendors. It remains subject to satisfaction of customary conditions and is expected to complete in mid-December.

The post Adairs share price rockets higher on $75.5 million Mocka acquisition appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019