Elixinol Wellness has announced plans to acquire The Sustainable Nutrition Group (TSN) as both companies pursue their shared ambition to become "global leaders" in the plant-based food, health and wellness sector.
Under the terms of the agreement, expected to close in March 2023, Elixinol shareholders will retain a 70% stake in the combined entity, with TSN shareholders holding the remaining 30%.
The deal follows strategic reviews conducted by both ASX-listed companies, during which Elixinol confirmed it was shifting away from CBD toward plant-based wellness products.
Elixinol had weighed up a range of options — among them an outright sale of the company — as part of efforts to generate value for shareholders.
TSN, which changed its name from Australian Primary Hemp Limited late last year, launched its own review in July after losing a key customer supply agreement, an event that also led to the exit of managing director and chief executive Neale Joseph.
TSN produces, manufactures and distributes sustainable and plant-based nutrition products — including hemp goods — across four brands: Mt Elephant, Australian Primary Hemp, Field Day and The Australian Superfood Co.
In FY22, the company recorded revenue of A$3.47m, an 84% increase on the prior year, though losses grew 13% to nearly $5m. First-quarter FY23 revenue came in at $822,000, broadly consistent with the same period the year before.
The combined Elixinol-TSN business will span eight brands and 143 products across the human nutrition, food, CBD, pet and wellness categories.
Following both strategic reviews, the merged group is projected to achieve cost savings of up to $6.6m.
Elixinol said in an announcement to the ASX: "The Elixinol Wellness Board has been actively conducting a strategic review of its business activities, which included consideration of merger, sale or other options for the company as a whole or its individual business units.
"The purpose of the strategic review has been the maximisation of shareholder value. As a result of the strategic review, and following completion of due diligence, the board… has identified the proposed schemes [of arrangement] as a preferred option to maximise shareholder value."
Elixinol Wellness global chief executive Ron Dufficy said the company had assessed several businesses during its review and is "confident that The Sustainable Nutrition Group is a strong fit for Elixinol Wellness".
"We are fully aligned in our vision to build a leading global plant-based food, health and wellness company and have identified many ways in which we can leverage our infrastructure and highly complementary product set in order to realise this vision," he said.
The proposed acquisition will expand Elixinol's Australian distribution footprint from 2,300 to 4,100 locations, he added, and deliver "substantial cross-sell opportunities for EXL and TSN brands".
"It will also enable Elixinol Wellness to obtain access to a fully integrated hemp growing network in Australia to support consumer preference for locally grown and produced products," Dufficy said.
"We are particularly excited about the scale that we will achieve with this transaction. Increasing the size and scale of both businesses enables access to economies of scale and provides cost efficiencies to support the delivery of our profitability goals."
TSN interim executive chair Pauline Gately said: "The combination of TSN and EXL creates a leading plant-based food, health and wellness company with a strong global distribution network.
"We immediately recognised the merits of combining the two highly complementary businesses to rapidly broaden the product range and share each other's leading product development IP to drive cost-effective growth."
Separately from the main transaction terms, Elixinol will make available up to $2m to TSN to refinance existing debt and fund working capital requirements.
