The earnout conditions of Maggie Beer Holdings’ (MBH) acquisition of Hampers & Gifts Australia (HGA) in April 2021 are now in dispute, with HGA vendors rejecting MBH’s position it doesn’t need to be paid because the earnout hurdle wasn’t met.
In its FY23 results, MBH said net sales for HGA was down 7.5% on FY22, but its market share improved. Its overall results were disappointing, with CEO Kinda Grange saying it reflected the impact of rising interest rates and inflation on consumer spending, shifting habits in online shopping, and higher freight and labour costs.
MBH acquired HGA – a gourmet hamper business, operating as The Hamper Emporium and Gifts – for $40 million, when it was actively looking to grow its direct to customer and ecommerce business.
At the time, the deal said earnout would be an initial price of 50 per cent cash and 50 per cent MBH shares under a two-year escrow issued at $0.35 per share. An earnout would be subject to HGA businesses achieving a combined $10 million EBITDA in FY23.
The HGA acquisition had an immediate positive affect on the company, with HGA’s net sales up 98 per cent to $36 million and Q4FY21 net sales (MBH bought the company in this quarter) up 26 per cent on Q4FY20.
By November 2021, ecommerce accounted for 44 per cent of MBH’s total net sales, up from two per cent the previous year. Ecommerce had grown 154 per cent over the previous 12 months.
In FY22, ecommerce sales were up 32 per cent on FY21, with 66 per cent of revenue coming from the channel.
In May, MBH said it didn’t expect the earnout hurdle to be met, so it reversed the provision, putting that $14 million back into FY23 net profit after tax (NPAT).
It also reviewed cash generating units and assets, which resulted in a non-cash impairment of $12.5 million against the goodwill of HGA in the FY23 accounts – an “offset to the contingent consideration release and reflective of the macro-economic environment in which the business is operating,” the company said.
The impairment reduced the value of HGA from $63.6 million to $51.1million.
The HGA vendors have told MBH they don’t agree with MBH’s decision of the earnout.
The share purchase deed stipulates the companies have to now enter good faith negotiations and use “all reasonable endeavours” to reach an agreement. If not, the matter must be referred to an expert for binding resolution.
The board said it maintains its position that the earnout hurdle was not met so it was under no obligation to pay the earnout to the HGA vendors.
