Bubs, which sells goat milk products to China’s middle class, has agreed to buy infant formula producer Australia Deloraine Dairy. It has agreed to a private share placement to new Hong Kong-based investment firm C2 Capital Partners, which will become a major shareholder in the company.
Alibaba is believed to be an anchor investor in C2 Capital, along with other institutions and sovereign wealth funds looking to capitalise on China’s middle class consumer boom. C2 Capital was established last year and the Bubs deal is its first investment.
The backing of a fund, which counts Alibaba as a key investor, is a win for Bubs as many of its rival brands would also like the Chinese ecommerce giant to invest in their businesses. Other Australian dairy companies sell their products in China via Alibaba’s Tmall platform.
Bubs has agreed to pay $25 million in cash and $10 million in shares for Australia Deloraine Dairy, plus further payments of $15 million over three years if certain performance targets are met.
Bubs and C2 Capital have also agreed to raise $31.4 million through a private share placement at 65¢ a share. C2 would also acquire additional shares in Bubs from existing shareholders, the NuLac Foods Vendors, giving it a 15 per cent stake in Bubs.
Key foothold
C2 managing partner Steve Lin, who will join the Bubs board, was not available for interviews on Monday. The company did not appear to have a website. The fund was formed last year to invest in companies capitalising on the boom in spending by China’s middle class.
“This is a key foothold in Bubs’ vertical integration strategy to maximise control of our supply chain and represents an important step in our vision to expand our China business,” Bubs Australia chief executive Kristy Carr said.
The deal is the latest in a string of investments Bubs is making to meet demand in China for Australian dairy products. Bubs’ first-half pre-tax loss doubled to $8.3 million in the first-half of the current year.
Australia Deloraine Dairy is one of only 15 licensed facilities in Australia authorised by Chinese regulators to produce infant formula products that can be imported into China. Tough new regulatory requirements in China are making it more challenging for foreign dairy imports into the country, particularly for those who have not been awarded one of the limited number of licences available.
Bubs said the deal would allow it to reduce production costs and put it in a better position to achieve brand registration with China’s regulators.
Rival The a2 Milk Company gained its Chinese certification in 2017, while Bellamy’s Australia is still waiting for a new licence to sell Chinese-labelled products in stores in China.
Bubs already has a deal with Alibaba’s TMall Global that means the Bubs range of formula, organic baby food, cereals and snacks will be sold on the platform.
Bubs shares closed 1.2 per cent lower at 79.50¢ after coming out of a trading halt on Monday.
Bubs was founded in 2006 and listed on the ASX in January 2017. It recently acquired NuLac Foods which is Australia’s biggest producer of goat milk products.