Obtala Ltd (LON:OBT), the Africa-focused agriculture and forestry group, saw its shares jump 7% today on news it is acquiring a profitable trader and producer of timber for up to US$14.8mln.
WoodBois International (WBI) owns a 102,000-acre concession in Gabon with a 24,000-square metre sawmill and an 18,000-square metre veneer plant opening later this year.
Its historic trading revenues were US$15mln and it has been profitable for the last five years, meaning the deal will be immediately cash accretive.
In early afternoon trading, Obtala shares on AIM were up 7.2% at 20.38p.
WATCH: Obtala takes 'step-up the value chain' with WoodBois acquisition
Chairman Miles Pelham said: “Obtala has plans for the rapid expansion of WBI's trading business, which to date has been constrained by a lack of access to capital, and which we have great confidence will drive revenue and margin expansion in the forestry division.”
Strategic investments identified
He said “strategic” investment in the business would generate cost savings and enable it target higher margin product lines, which chimes with the strategy of Argento, Obtala’s forestry business in Mozambique.
“This acquisition marks a step-up the value chain as we look to position Obtala at points where our margins are maximised and where we see long-term sustainable growth and synergies,” said Pelham.
“Extensive work has been undertaken during the last few months examining businesses that exhibit motivated and committed management, strong synergies that are at or near cashflow positive, and where a partnership with Obtala will lead to a mutually strengthened platform.”
The acquisition funds will paid in three tranches covering five years and a portion satisfied with Obtala paper, starting with an upfront US$3mln.
First major deal
The City broker VSA Capital pointed out this is Obtala’s first major deal since raising US$27mln last year and early this – growth capital it amassed to build a leading African forestry and agriculture business.
It said WBI has been starved of working capital in recent years. As such its new owner will probably look to bring in export finance to significantly expand the trading operations as well as investing around US$500,000 to increase the output.
“This deal also provides Obatala with an established trading operation for its existing hardwood operation in Mozambique to gain greater access to international markets, with WBI currently selling wood into more than 40 separate countries,” VSA said.
“Importantly for a trading business that relies on personal networks, the two founders of the business have agreed to remain with the company for a minimum of five years.
“Management believe that with additional capital WBI could rapidly improve its financial performance, contributing an operating profit of more than around US$12m to the group by 2019 under its base case scenario.”
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