Personal care-to-beauty products supplier Swallowfield's (SWL:AIM) share price soars on excitement surrounding the transformational acquisition of Brand Architekts. Bringing critical mass to Swallowfield's 'owned brand' portfolio, the deal is being funded with the help of an oversubscribed £8.6 million placing, backed by new and existing shareholders including CEO Chris How, numbers man Mark Warren and chairman Brendan Hynes.
Click here to read the announcement from Somerset-based Swallowfield, the designer and supplier of shower gels, deodorants and lip glosses for global brands and major retailers, which triggers a 30.4% share price surge to 212.5p.
Successfully turned round and returned to the dividend list by former PZ Cussons (PZC) man How, Swallowfield is paying £11 million to get its hands on Brand Architekts, a highly-profitable owner and manager of beauty and personal care brands.
Broker N+1 Singer believes the acquired portfolio has 'excellent growth potential' and has pushed through material earnings upgrades to its forecasts for the years to June 2017, 2018 and 2019.
These brands include Dirty Works, Kind Natured, Argan, Happy Naturals, DrSalts, Superfacialist and Senspa, sold in major UK high street retailers and exported to North America, Australia, Turkey and the Nordics.
Swallowfield describes the takeover as a 'transformational opportunity', bringing critical mass to its owned brand portfolio and enhancing group margins and cash generation.
As Shares outlined here in December, owned brands are a powerful growth driver for Swallowfield, among them organically-developed offerings such as premium beauty offering Bagsy and men's haircare range MR., as well as The Real Shaving Company, a brand acquired in May of last year.
Bold and ambitious M&A moves often ring alarm bells, yet Brand Architekts' numbers look very attractive; the high-growth business made £2 million pre-tax profit from a top-line £10.7 million in the year to January 2016 and will enhance Swallowfield's earnings from the get-go.
How says 'Brand Architekts has built a very successful stable of brands that will complement our developing owned brand business. By combining the two businesses we believe that we can leverage both existing skill sets, including product development, R&D, supply chain, digital marketing, and online sales, to the benefit of all stakeholders.'
Twinned with the takeover news is a positive trading update from Swallowfield. With less than a month remaining until the end of the financial year, How says the strong momentum seen in the first half has continued in the second half.