Derrimon expands with APO funds

Derrimon Trading is spreading its wings, to New York, with the recently announced agreement to acquire control of the Brooklyn-based operations of FoodSaver New York, Inc. a wholesale food distributor and Good Food For Less, LLC, a speciality supermarket.

The acquisition will be done through a New York based, Derrimon subsidiary, Marnock LLC, which will acquire the Brooklyn-based operations as a going concern. “The overall consideration upon completion is expected to be valued between USD$8.9 million and USD$9.1 million,” Derrimon states. The amount translates to J$1.3 billion.
The purchase will be funded from proceeds of a current additional public offer, to raise around J$3.5 billion and a 20 percent minority interest in Marnock.
Derrimon expects the deal to be completed in the first quarter of this year. According to the prospectus, the businesses being acquired generated revenues of J$5.1 billion with 6% or J$311 million being converted into net income.”
Derrimon Trading reported flat revenues of $9.62 billion for the nine months to September over $9.53 billion reported for the similar period in 2019, with Gross Profit of $1.84 billion, increasing by $182 million and Profit before Tax of $316 million, up 25 percent or $61 million over 2019. forecast is 16 cents per share for 2021, with the current PE Ratio at 15 times earnings and suggesting the stocks is fairly priced on the basis that the existing business remains substantially intact along with the new business being acquired. The company has just two years left of the tax concession for listing on the Junior Market.

Caribbean Flavours a Derrimon’s subsidiary

The company is offering if fully subscribed the gross proceeds will be approximately J$3.50 billion, of which approximately J$205.25 million is expected to be used to pay transaction costs. The net proceeds from the invitation are expected to be J$3.29 billion. If the option to upsize is fully exercised the maximum proceeds is J$4.22 billion and result in the total shares in issue at 4.2 billion based on the initial share offer.
The shares are priced at $2.20 for existing shareholders and $2.40 for the public. Derrimon has grown by using a high level of borrowed funds, which is a highly risky way for funding expansion. $1.1 billion of the APO proceeds will be used to fund the New York businesses’ acquisition. $1.2 billion will be used in reducing existing loans, with $500 million to be used in the expansion of a retail location in Clarendon and working capital.
There are positives and negatives with the acquisition and capital raise. The successful raising of fresh capital will better balance the company’s leveraging that was out of line with safe levels. The amount slated for debt reduction will save around $90 billion per year before taxation and will help to improve the profitability of the group. The group can reduce some areas of cost with the larger size and will have greater opportunities for cross-country sales, thus expanding sales and profit. Overseeing managing a new business overseas is often more difficult than it may appear at the start.
The current share offer closes on January 26 and the stock last traded at $2.38 on the Junior Market of the Jamaica Stock Exchange.

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