Creso Pharma Ltd (ASX:CPH, OTCQB:COPHF) is looking to snap up the assets of Abby and Finn LLC, having inked a non-binding letter of intent to acquire the natural baby products company and capitalise on its subscription model and database.
Abby and Finn (A&F) is a leading US-based provider of natural products for babies. Its success is driven by a focus on plant-based, affordable products alongside a strong e-commerce subscription model.
Natural baby products
A&F’s key product lines include naturally derived, cruelty-, alcohol-, paraben-, chlorine- and oil-free baby wipes and diapers.
Creso will be looking to leverage some 2,800 monthly A&F subscribers, with an average order value of US$82.19, and a customer lifetime value of US$735, compared to a customer acquisition cost of just US$43.55.
During the third quarter of 2022, A&F generated US$635,000 of unaudited revenue, implying an annualised revenue base of US$2.5 million (A$3.7 million).
Strategic US portfolio
The A&F acquisition fits strategically into Creso’s Sierra Sage Herbs (SSH) US portfolio, adding an additional suite of unique, plant-based products to the group.
SSH will be able to further optimise A&F’s cost structure by absorbing and eliminating fixed costs, improvements to manufacturing efficiencies and shared services.
Added to that, SSH’s strong retail presence, which includes retailers such as CVS, Rite-Aid, Whole Foods and Albertsons, among others, will allow the company to introduce A&F products to retail – representing a significant opportunity.
The acquisition further strengthens Creso’s commitment to shareholders to build a suite of leading plant-based brands in high-growth verticals, while benefiting from shared services and economies of scale.
Once finalised, the acquisition would take Creso’s last quarter annualised revenue to A$27.5 million, based on the inclusion of SSH revenue, and the revenues of pending acquisition targets Health House International and Abby and Finn.
Simplified balance sheet
The company has also taken steps to simplify its balance sheet by modifying the structure of an existing loan.
A new pro-forma entity will also benefit from optimisation of A&F’s cost structure by absorbing and eliminating fixed costs, creating improvements to manufacturing efficiencies and allowing for shared services.
Creso has signed a converting loan deed and loan modification document with La Plata Capital LLC, an existing lender to SSH, to repay US$717,500 in cash and swap US$1,282,500 for convertible notes valued at US$1,282,500 of La Plata’s US$2 million debt with SSH.
The expected retirement of a portion of the La Plata obligation would significantly clean and simplify the balance sheet while providing further alignment between the two companies.
CEO and managing director William Lay said: “The potential acquisition of Abby and Finn brings several significant benefits to the Creso Group of companies.
“Adding A&F’s unique product suite to the SSH portfolio provides many opportunities for revenue synergy. We will seek to leverage SSH’s key relationships to introduce these products to retail, off the back of their success to date in e-commerce.
“Additionally, SSH can leverage the success of A&F’s subscription model to optimise its online offering. We also see opportunities to optimise both businesses on the cost side and look forward to continuing to bolster our shared services platform in the US to eliminate overlapping costs and inefficiencies. We look forward to providing additional updates in due course.
“We are also pleased to have converted a portion of SSH’s existing debt to a parent company instrument similar to other instruments that we already have in place, extending the maturity of the La Plata loan and simplifying our balance sheet.”