Notes on Atraco Acquisition
(from Company release, Management Interviews & con-call)
Quick info on Atraco:
It’s a well-established Dubai-based garment manufacturer.
The HQ in UAE covers functions of Product Development, Marketing, with Manufacturing based in Africa (4 units in Kenya & 1 in Ethiopia)
The co produces about 40 Mn garments (with a 74:26 mix in Woven & Knit).
And the customers include 40-50% Children (newer segment for Gokex)
Co is tax-free, being based out of Dubai.
Customer base is 95% US based with only 1 common customer
The key advantage it offers is being a low-cost duty free manufacturer.
Kenya has duty free access to US. The agreement governing it, AGOA is due for extension in 25, The management is confident of the extension.
Ethiopia has duty free access to Europe, while US access has been temp suspended.
Financials
Group’s revenue is about $107 Mn with a profit after tax of $7.2 Mn for 2022. (after a 1 time cost of $1Mn)
That is at 30 & 35% of Gokex Revenue & Profitability base.
So the company is of a substantial size from Gokex standpoint.
The EBITDA (adjusted) – 10.5%
Could improve by 1.5 -2 % in 2-3 yrs from Productivity gains, Modernisation . Management expects a growth of 25-30% in next 2-3 yrs
And would be incurring Capex of 4Mn in FY24/ 25
The current utilisation is at 88-89%
Valuation
The deal valued at $55 Mn & expected to close by Q3.
It is funded by mix of debt (40 MN $) and internal accruals
They have Working Capital of $35Mn & Debt of $15 Mn.
That makes the deal’s effective cost to be $35Mn (55-35+15)
The Owner is aged & selling to ensure proper Succession to Legacy.
The Mgmt is seasoned & to continue.
Previous Expansion plans
Gokex had suspended the Bangladesh expansion plans for time being, with multiple factors in play – rising Cost structures (min Wages to be revised) & global perception becoming less favourable.
Capital Allocation
The Management’s clearly focused on anything being a strategic fit first –
Adding capabilities in Low Cost regions, and ensuring sustainability of operations.
Further, looking at Attractiveness of the Opportunity – this deal provides comfort as it is akin to Buying Growth at low Valn.
Mgmt has been extremely focused on being Conservative & Execution oriented.
With this deal, GokEx moves towards being a truly global garment Exporter.
Disclosure – Invested & Biased.
Sources – Concall, Media release, Interviews on CNBC TV 18, BQ Prime.
https://twitter.com/CNBCTV18News/status/1696383371738599424?s=20
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