| INVESTOR BRIEF |
EXPANSION OF PROFITABLE SOUTH AFRICAN INK MANUFACTURER |
| Sector |
Ink Manufacturing |
| Geography |
South Africa and United States |
| Desired |
R180 million ($11.5 million). 30% Equity (R54 million) and 70% debt (R126 million) |
| Use of Funds |
Purchase of pioneering US ink manufacturer; construction of new ink facility in South Africa; and expansion of manufacturing business into selected African countries. |
| Proposed Equity Terms |
The Company is offering a 30% equity stake in exchange for the R54 million in equity financing. |
| Projections |
| |
PROPOSED DEBT TERMS |
| Total Debt |
R126 Million (70% of Financing) |
| Interest Rate |
12% |
| Tenure |
7 years |
|
| Company Background |
Based in Durban, South Africa, the Company is a leading supplier of premium quality screen printing inks and varnishes. The Company is a manufacturer and global supplier of printing ink with a wide range of ink products and silk screen supplies, including solvent-based, water-based, and UV curable coatings. The Company has a vision to become a leading global supplier of inks and varnishes. To manifest this vision, the Company is seeking R180 million ($11.5 million) for both the acquisition and expansion roll-out as described below. The Company had gross revenues of R20.2 million ($1.26 million) in 2016 with a healthy gross profit margin of 50%. The Company’s 2016 revenues were a 74% increase from the annualized 2015 revenue of R11.6 million ($725K). In 2016, the Company had net income of R6.3 million ($393K), i.e., a net profit margin of nearly 30%. The Company’s 2016 net income was a 40% increase from the annualized 2015 net income of R4.6 million ($288K). |
| Company’s Competitive Advantages |
The Company currently benefits from several competitive advantages: • 100% BEE Owned — The Company is the only 100% BEE owned ink manufacturer in South Africa. This designation provides a major competitive advantage in obtaining contracts from both government departments and large private companies. • Price – Due to the Company’s sourcing strategies, the Company believes it has a lower production cost than all of its competitors in South Africa; thus, enabling the Company to offer the lowest prices in South Africa. The Company estimates that in South Africa its prices are at least 20% lower than its competitors. In the international market, the Company estimates that its prices are 25% below its international competitors, which includes competitors in Nigeria, Kenya and Zambia. • Quality – The Company’s proprietary ink formulas make its products technically superior to those offered by its competitors. These proprietary formulas enable the Company’s inks to adhere to multiple substrates, while the Company’s competitors have to use separate products for different substrates. |
| The Acquisition |
The Company has entered into an agreement to acquire (the “Acquisition”) a US based ink manufacturer (the “Target”). The Company currently licenses certain technologies from the Target. The Acquisition will provide numerous benefits to the Company: 1. The Company’s Gross Profit Margin will immediately increase by 20% as a result of the removal of licensing fees as well as lower supplier costs due to increased volumes. 2. The Company will acquire all of Target’s customers and therefore be able to increase the Company’s volumes. Additionally, the Company will be able to offer its products to Target’s customers. 3. The Target is a recognized pioneer in ink manufacturing and continues to develop innovative ink products that are currently used by some of the most recognized brands in the world, e.g., Harley Davidson, Wal-Mart and Disneyland. After the Acquisition, the Company will rebrand as under the Target’s internationally recognized name. 4. After the Acquisition, the Company expects to increase margins at the Target by 10-15% through more efficient input sourcing. Without any additional growth, this increase in profit margins will increase net income at the Target by $1 million (R16 million) – $1.5 million (R24 million) annually, i.e., more than double operating income. 5. The Acquisition will include approximately 8 patents. These patents open new licensing opportunities for the Company. The Company is currently in discussions with parties in Singapore and India to license the technology. From these two transactions alone the Company expects to generate $250,000 (R4 million) in additional income in the first year. |
| Expansion |
The Acquisition is combined with an aggressive expansion initiative where the Company will (1) construct a new manufacturing facility in South Africa and (2) establish its presence in key African markets. The African ink market is estimated to be $900M (R14.4B). The Company enjoys significant competitive advantages over the competition in Africa in terms of price and quality of its products. The current financing will enable the Company to expand into key markets on the African continent, i.e., Kenya, Nigeria and Zambia. In each of these markets, the Company will establish a sales office and ink blending plants. |
| Projections |
| |
2016 (ZAR) |
2017 (ZAR) |
2018 (ZAR) |
2019 (ZAR) |
2020 (ZAR) |
| Revenue |
209.6M |
278M |
354.6M |
445.5M |
493.7M |
| Profit Before Tax |
35.7M |
69.3M |
102.6M |
141M |
160.7M |
| EBITDA |
68.3M |
113.3M |
155.4M |
202.8M |
225.8M |
|
| DSCR |
The Company projects strong free cash flow over the forecast period generating sufficient cash to service the proposed debt with low DSCR of 1.43x in year 1 increasing to 7.81x in year five with an average DSCR of 5.05x over the period. |
| Equity Return |
The 30% equity stake in the Company being offered is expected to provide an 80% IRR and a Return on Equity of 319% over the first five years. |
| More Information |
Information Memorandum, Financial Model and further documentation available for review upon execution of NCNDA |
| Contact |
For more information, please contact: FN Gibb | assessments@brodyline-africa.com |
Disclaimer:
This Investor Brief is provided to you for informational purposes only. Although BRODYLINE takes great care in selecting unique investment opportunities for investors, all investors are fully responsible for any investment decisions they make, and such decisions must be based solely on their evaluation of financial circumstances, investment objectives, risk tolerance and the passing of due diligence checks. This Investor Brief is not intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or investment opportunity.
