Blackmores Limited buys Chinese medicine business: Is it time to buy?

Is today’s announcement a ‘buy’ signal for Blackmores Limited (ASX:BKL)?

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Blackmores vitamins

Credit: Blackmores

Shares in health product manufacturer Blackmores Limited (ASX: BKL) traded effectively flat today after the company announced the acquisition of a leading Australian provider of traditional Chinese herbal medicine products.

Blackmores will acquire 100% of Global Therapeutics Pty Ltd for A$23 million subject to minor adjustments. The acquisition will be funded entirely by debt and is expected to be earnings accretive to Blackmores in its first full year of ownership. In the last 12 months, Global Therapeutics achieved $20 million in sales and $3 million in earnings before tax, depreciation, and amortisation. At around approximately 7 times earnings, the acquisition doesn’t appear overly expensive.

Global Health will bring with it its full product portfolio including leading brands Fusion and Oriental Botanicals, as well as more than 40 staff. Blackmores seems to have an eye on the big picture, with the company hoping to add Global Therapeutics’ brands to its distribution network in Asia, to take a larger slice of this ‘$170 billion global market‘.

There’s a certain delicious irony to buying an Australian manufacturer of Chinese traditional cures in order to sell said Chinese cures to the Chinese, but based on the size of the market there could be an opportunity for Blackmores. For sure, Blackmores wouldn’t have to achieve more than a tiny sliver of the Chinese market to make its Global Therapeutics purchase pay off. As it stands, the Global Therapeutics acquisition might deliver approximately 1% growth in Blackmores’ full year profits.

Don’t forget the competition

Investors ought not get too carried away, however. The opportunity in China is huge, yes, but there are many healthcare product manufacturers, and each is trying to claim a piece of the pie. Just in Australia we have Bellamy’s Australia Ltd (ASX: BAL), and A2 Milk Company Ltd (ASX: A2M), Bega Cheese Ltd (ASX: BGA), and Blackmores trying to muscle in on baby formula sales. Blackmores faces competition in other categories from Vitaco Holdings Ltd (ASX: VIT), and internationally from titans like Pfizer, Amway, and Swisse, as well as local manufacturers.

So while today’s announcement is a positive for shareholders, an investment in Blackmores today involves taking a big-picture view.

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Motley Fool contributor Sean O'Neill owns shares of A2 Milk. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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