For listed health & wellness company Wattle Health (ASX:WHA), 2021 is shaping as a big year for growth as the company gets set to relaunch on the ASX.
The relisting marks the next step in a busy six months, which saw management execute on the disposal of key assets before pivoting with a strategic acquisition.
Earlier this month, WHA announced a rebrand to Wellnex Life, along with the acquisition of Brand Solutions Australia (BSA), which specialises in developing products and brands in the multi-billion-dollar health & wellness sector.
Stockhead caught up recently with Wellnex CEO George Karafotias to discuss the latest developments, along with BSA executive Zack Bozinovski who has now joined WNX as a director and chief strategy officer.
Strategy pivot
For Karafotias and the WNX management team, the BSA deal was the result of an extensive due diligence process, after the company recapitalised with the sale of Cori Bay Dairy Group (CBDG) to Mail Dairy. The sale along with the convertible note arranged by Reach Markets allowed the company to execute on a revised strategy when most infant milk players are doing it tough.
Working with Julius Cohen, Executive Director of Reach Markets, WNX assessed possible acquisition targets for around six months before arriving at a deal with BSA.
And as Karafotias explains, there was an existing degree of familiarity because the two companies had already worked together.
“We’d worked with their sales and marketing arm for around 12 months, and they were instrumental in landing a distribution deal for our previous product range with Chemist Warehouse,” Karafotias said.
By late last year, the two companies began discussing how to combine their respective strengths, and merger talks were on the table.
From there, both sides spent the next few months ironing out the details with Reach to seal the deal.
“I think we got a very good outcome with the structure of the transaction. The initial consideration was up front which is good value for our shareholders,” Karafotias said.
“Then there’s the potential for the BSE vendors to make future earnouts based on EBITDA figures for the next three years. So the more they perform, the more our shareholders are rewarded but they’ll also benefit from that upside.”
Quality of management
Heading up the BSA team was Zack Bozinovski, a health & wellness entrepreneur who already has a successful 10-year career in the sector.
Along with BSA, Bozinovski was a major shareholder cofounder of VÖOST Vitamins, a German-produced electrolyte formula which was recently sold to US multinational Proctor & Gamble.
“They (BSA) have had a rapid amount of growth over the last three years, and Zack’s got the experience, contacts and knowledge in this space to really drive the business forward,” Karafotias said.
As a brand founder, Bozinovski has built strong distribution partnerships with a number of key domestic players, including leading national pharmacy Chemist Warehouse.
“To understand our business, you need to understand that it works both ways. So a lot of our distribution partners that we sell brands to also talk to us about supplying products they can’t source,” Bozinovski said.
As an example, he cited BSA’s proprietary brand Liquigesic – a form of liquid analgesic for pain relief.
“Chemist Warehouse had an existing analgesic brand, and we demonstrated the market opportunity because consumers are prepared to pay more for liquid analgesic (compared to tablet form),” he explained.
“It’s not a race to the bottom on price, and they ended up asking us to do a joint venture sales agreement.”
So that product’s going to hit shelves mid-year and there’s obviously a lot of benefits to partnering with a business like that. It gives us the opportunity to build credibility with what we do and how we deliver.”
Platform for growth
Looking ahead, the WNX team is now positioned with the right capital structure and management team in place to capitalise on one of Australia’s largest food product sectors.
“From my side, the way we structured the transaction is one of the key parts of this deal,” Karafotias.
“Zack’s committed to this company for the long term. It’s not a case of selling the business and getting a cheque – his earnings are based on performance-based targets and I’m excited by what we can grow here.”
Bozinovski added that along with BSA existing product range, the company is also taking a market-leading approach to capitalise on the forthcoming opportunity in CBD (cannabidiol) products.
Big changes are underway following the TGA’s ruling to allow over-the-counter distribution.
While a bit of a “gold rush” is underway, Bozinovski said the TGA approval process means he doesn’t foresee any products hitting the market for another 12-13 months.
But “suffice to say there’s lot of work going on behind the scenes with respect to CBD. And my vision is we’d be a fairly serious player in the Australian CBD market (in future)”, Bozinovski said.
“I see the addressable market climbing to around $2bn over the next 2-3 years. There’s a lot of excitement, but at the end of the day you still have to be able to get the product, process it, get approval, get it packaged and then find the customer,” he said.
“So we’re currently involved in a lot of meetings with retailers and partners. For us it’s a really big vision for our business and something we definitely want to be a part of.”
This article was developed in collaboration with Wattle Health, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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