Goat's milk group Nuchev buys Adelaide health products supplier bWellness for $7m

Half the deal will be paid for in Nuchev shares with the other half in cash, of which 80 per cent will be paid upfront and 20 per cent will be spent a year after acquisition with conditions around performance and the retention of key personnel.

The cash consideration will come from a $5.1 million pro-rata entitlement offer at 15.6c per share, which has already received commitments from substantial shareholders H&S Investments, Nuchev's founder and chair Ben Dingle, and director Craig Silbery.

H&S took a share in the company of almost one fifth in June as part of a $6.5 million raise, making it Melbourne-based Nuchev's second-largest backer after Dingle who holds around 38 per cent.

Without the capital boost that came from the H&S investment the company would now have a negative cash position, as its reserves stood at $4.9 million by the end of March.

But the deal was not just for the sake of liquidity. H&S happens to be one of Australia’s largest local and export wholesalers for infant formula, vitamins and supplements, skincare and personal care into China, Hong Kong, Macau, Vietnam and other parts of Southeast Asia.

In the first half-year of having a distribution deal in place with H&S, Nuchev witnessed growth of 157 per cent in China cross-border e-commerce (CBEC) for its branded sales of Oli⁶ goat milk-based products, reaching $4.4 million. This is out of total sales of $6.7 million for the range in Australia and China for the December half. 

The influence of the new backer is unmistakable in this regard, and can also be seen in the latest acquisition as a 50 per cent owner in bWellness, Brauer Natural Medicine, is an affiliate of H&S Investments.

Brauer Professional, which manufactures the Brauer and Medicine Tree Therapeutics ranges in Australia and also imports products including Heel and Reckeweg from Germany, is one of two main brands distributed by bWellness, with the other being nutraceuticals supplier BioPractica.

Nuchev was drawn to the acquisition as it would scale and diversify the existing business, which has already been branching out with a cow's milk-based product.

The deal would also more than double prior year revenue for FY23, while lifting pro-forma revenue for the combined group by 74 per cent in the December half alongside positive earnings of approximately $1.3 million.

The acquirer also highlights the new sales channels bWellness would bring about 200 new complementary health and wellness products for its portfolio. The purchase price equates to around 4.3x enterprise value.

The capital raise will bring about significant dilution for shareholders who don't take up the offer as it represents 36.4 per cent of shares on issue, for a company whose market capitalisation is just $12.7 million - less than one-tenth the size of the ASX's most notable goat's milk company Bubs Australia (ASX: BUB).

If shareholders vote in favour of the acquisition and capital raise at an extraordinary general meeting (EGM) due on 19 June, Nuchev’s pro forma net cash position would be approximately $7.5 million. If all goes to plan, the acquisition will be finalised by the end of June.

"The acquisition of bWellness is a compelling deal for Nuchev and is in line with our growth strategy. bWellness’ product set is aligned with our existing purpose and growth focus, bringing a new sales channel in the large and growing complementary medicines sector," says Nuchev CEO Mick Myers, who from late 2023 until today was just in the role on an interim basis, following the departure last year of Greg Kerr.

"The acquisition will deliver increased scale, diversification and importantly, improves Nuchev’s operating cashflows. In addition, there are exciting opportunities to leverage our existing retail and distribution capabilities as we expand our combined business."

The decision to make Mick Myers the company's permanent CEO came after an extensive and robust recruitment process to find the right capability to lead the organisation.

"Alongside our other announcements made today, the board is delighted to confirm Mick’s appointment as CEO," says chair Ben Dingle.

"Over the last six months Mick has demonstrated exceptional leadership capabilities and has successfully delivered the bWellness acquisition and worked closely with H&S to ensure delivery of their sales performance targets.

"We look forward to the benefits of Mick’s leadership as we complete the bWellness acquisition and integration as we continue to grow and scale the combined Nuchev business."

Nuchev listed on the ASX in December 2019 with an offer price of $2.60 per share. Its revenue has shrunk from $17.8 million in the financial year of its listing to $8.8 million in FY23, although its annual loss position has improved by more than $2 million to $8.8 million in the red, meaning it spends double what it makes.

Since listing Nuchev's share price has eroded by 94 per cent to the level of the latest entitlement offer, which itself is at a slight premium to the trading price.