By Dominic Powell
Shares in homewares and linen seller Adairs soared on Wednesday following the news the retailer has snapped up New Zealand-based retailer Mocka to supercharge its online sales.
The ASX-listed Australian retailer announced on Wednesday morning it had entered into a deal to buy Christchurch-based Mocka in a part-shares, part-cash deal with a notional value of $75.5 million.
Adairs has picked up New Zealand-based retailer Mocka for $75 million.
Shares skyrocketed over 20 per cent to $2.14 following the announcement, their highest price in the last 12 months.
Mocka is a family-owned business founded in 2007, and primarily sells home furniture, kids furniture and baby goods into both Australia and New Zealand with annual revenue of $37.2 million.
Mark Ronan, managing director and chief executive of Adairs, said the tie-up would see the online share of his company's overall sales almost double to 30 per cent and take it closer to his annual target of $100 million. Adairs' online revenue was $58.8 million in the 2019 financial year.
"This definitely increases our exposure to that online space, and we see that as a continuing growth channel for both Mocka and Adairs into the future," he said.
We don't believe there's been a significant tailwind brought about by [the mid year] tax cuts.
Adairs chief executive Mark Ronan
Mocka's integration with Adairs follows a similar pattern to Australian womenswear retailer Noni B's recent purchase of Kiwi online seller EziBuy, with both businesses pitching the acquisitions as a way to juice up their online business.
Mr Ronan said the trend is an obvious one for bricks and mortar retailers who are keen to offer more products but may be otherwise restricted in space.
"Online gives you the opportunity to really expand the category and [offers] options without having to incur the additional costs of rent and all the rest of it," he said.
Adairs chief executive Mark Ronan.
The acquisition is expected to boost Adairs' earnings by around 10 per cent in the current financial year, with the company forecasting earnings before interest and tax (EBIT) for the 2020 financial year of between $52 million and $56 million.
No cost savings between the two businesses have been identified yet, with Mr Ronan saying they would "naturally come". Mocka will continue to be run independently by its existing management.
Adairs will fund the purchase through a combination of debt and the issuance of 3.2 million shares to Mocka's owners. Adairs will pay 65 per cent of the price ($49.1 million) on settlement in mid-December, of which $5.7 million will be in shares.
The remaining 35 per cent will be paid in tranches over the next two to three years, subject to Mocka's earnings. In total, the company expects the total purchase to cost between $85 million and $91 million.
Consumers in 'pretty good shape'
Mr Ronan also provided a brief update on Adairs' current trading for the first half of the financial year, noting the company was "on plan" with its sales targets ahead of the Christmas period.
The chief executive said the recent rise in property prices was a good sign for the retail sector more broadly, but agreed with other retailers that the federal government's recent tax stimulus had failed to have a measurable impact.
"We don't believe there's been a significant tailwind brought about by those tax cuts," he said. "But the consumer's in pretty good shape...they've remained pretty robust over the first half."