Could Bubs Australia Ltd (ASX: BUB) become the next A2 Milk Company Ltd (ASX: A2M) with its latest news?
Bubs was founded in 2006 by Kristy Carr and was listed on the ASX in January 2017. Its infant formula is based on goat milk and it also sells organic baby food. Bubs recently acquired NuLac Foods, Australia’s largest producer of goat milk products, it also guarantees exclusive supply of local goat milk from Australia’s largest herd of milking goats.
Here’s What Bubs Just Announced
After going into a trading halt, Bubs has announced to the market what it is acquiring.
Bubs is going to buy infant formula producer Australia Deloraine Dairy which is based in Melbourne. The overall acquisition price is $25 million in cash and $10 million of Bubs shares at a share price of $0.65. If certain targets are met there could be more payments of up to $15 million.
Deloraine is one of only 15 canning facilities in Australia authorised by the Certification and Accreditation Administration of China (CNCA) for physical importation into China under regulatory requirements administered by State Administration for Market Regulation (SAMR).
The plant has the capacity to process 10 million tins with its existing production line and could double capacity with investment.
Bubs Founder and CEO Kristy Carr said: “This is a key foothold in Bubs vertical-integration strategy to maximise control of our supply chain and represents an important step in our vision to expand our China business.”
The acquisition will reduce production costs and give Bubs the best chance to achieve SAMR brand registration to enable its products to be sold in China in physical Mother and Baby stores.
Bubs also announced that it has entered into an agreement for a private share placement with C2 Capital Partners to raise $31.44 million before costs. C2 will also acquire more shares off-market to hold 15% of Bubs. C2 Managing Partner Steve Lin will then join the Bubs board. Some of the funds will be used for the Deloraine acquisition.
Is Bubs a buy?
Bubs seems to be taking all the right steps to become the next ASX formula business to become an international success like A2 Milk Company Ltd (ASX: A2M), although it’s still very early on in its journey, there are many things that could go wrong.
I would be happy to buy a small parcel of Bubs shares and consider more as it passes each stage necessary to become a great business. Two stages I’m thinking of are: achieve SAMR approval, and become profitable.
For now, I’m happy to consider the ASX stocks in the free growth share report below.
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