The Adairs Ltd (ASX: ADH) share price is climbing on Tuesday following an update on the acquisition of Mocka.
Founded in 2007, Mocka is an online furniture business based in Brisbane, Australia, and in Christchurch, New Zealand. The company sells home furniture and décor as well as kids and baby products.
In mid-morning trade, Adairs shares are up 1.53% to $4.64.
Let's take a closer look and see what the company announced.
Adairs brings forward Mocka acquisition
Investors are snapping up Adairs shares after the company provided some positive news.
According to its release, Adairs stated that it has entered into an agreement with the vendors of Mocka to bring forward a settlement.
Back in November 2019, Adairs signed a purchase agreement for the deferred consideration component of Mocka. The 35% interest was to be split across two tranches on 30 September 2021 (15%), and in September 2022 (20%). The payable amount was based on the previous years of underlying earnings before interest and tax (EBIT).
However, under the revised agreement, Adairs will pay NZ$48 million (A$45 million) in September 2021 to acquire the entire 35% stake. This will be funded by the company's existing cash and term debt facilities.
In total, Adairs will have paid NZ$100 million (A$95 million) for the whole of Mocka following the September 2021 payment. This equates to around 7 times FY21's EBIT forecast for Mocka.
Adairs managing director and CEO, Mark Ronan commented:
This is a positive development for Adairs. Mocka has performed ahead of the expectations we had of the business when we acquired it in December 2019. Since then, our understanding of and confidence in the potential for the business has continued to develop, especially the scope for substantial further growth in Australia.
The early settlement of the deferred consideration enables the business to continue to invest in the short-term to realise the long-term potential that is beyond the time horizon of the founders. The total consideration paid for the business represents excellent value for Adairs shareholders.
In addition, Adairs noted that it expects to announce a new CEO for Mocka in August 2021. In the interim, the founders will remain in the business to support the transition until 30 September 2021.
Adairs share price review
It has been a strong 12 months for the Adairs share price, reaching a record high of $4.97 in late April. The company's shares have continued their upwards trajectory, gaining almost 40% in 2021 alone.
Based on today's price, Adairs commands a market capitalisation of roughly $772 million, with approximately 169 million shares outstanding.
