Neptune Technologies & Bioressources Inc. announces that it has acquired Montreal-based, privately held Biodroga Inc. for $15 million in a combination of cash and stock. All amounts are in Canadian dollars.

Biodroga is a leading solution provider of omega-3s and other functional ingredients to branded marketers in the nutraceutical industry, primarily in North America. Its customized product offerings primarily include omega-3s, along with other essential nutritional ingredients that are used in specialty formulations. Biodroga develops and distributes these solutions as turnkey finished supplements that are ready for sale, primarily as softgel capsules and liquids.

The business combination is highly complementary and further positions Neptune for success, by adding a new growth vehicle in a significantly larger addressable market. “Biodroga offers a scalable solutions platform, with a broad range of product development capabilities and cross selling opportunities,” highlighted Jim Hamilton, president and CEO of Neptune. “The acquisition allows us to play a much broader role in the customer value chain, leveraging our collective capabilities with an expanded set of offerings. It also opens up an important window on innovation and enhances our capabilities to develop new nutraceutical products.” This is a pivotal move, and Neptune sees the acquisition as a key cornerstone to support additional business development. The combined company should deliver considerable value for customers and shareholders. The purchase is expected to be immediately accretive to shareholders.

“This transaction is fully in line with our strategy to move further up the value chain, and build on our current solution business by further progressing into specialized product development services, such as formulation and blending,” added Mr. Hamilton. It also follows market trends in the dietary supplement space. As the industry develops, businesses are increasingly looking for tailored solutions, such as condition-specific formulations, something that Biodroga facilitates. In turn this creates increased customer interaction, opportunity and “stickiness” due to the heightened partnering created through customized offerings.

“Neptune brings important business development expertise, a leading krill oil product line, along with a more diverse customer base and an extended geographic reach,” highlighted Robert Cajolet, president of Biodroga. “As well, both companies share a similar culture--a drive for excellence and quality, a strong focus on customer satisfaction and an entrepreneurial spirit. Together, we will leverage our collective strengths to channel and accelerate growth beyond what could have been done independently.”

Under the terms of the purchase agreement, Neptune acquired 100 percent of the issued and outstanding shares of Biodroga for CDN $15 million, consisting of $7.5 million paid in cash at closing, an additional cash consideration of $3.75 million bearing interest and payable over a period of three years and $3.75 million worth of Neptune common shares issued at closing, representing approximately 2.6 million shares. These shares are escrowed and will be released over a period of three years. This represents a transaction multiple of approximately 5X Trailing Twelve Months EBITDA.

Neptune funded the cash portion of the purchase price payable at closing through a recently secured $7.5 million bank loan, in addition to a revolving line of credit of $1.8 million available to support Biodroga’s growth. Furthermore, Neptune invested $1 million of cash in the capital of Biodroga, which shall be considered as restricted cash until released by the Bank.

For the TTM ending October 31, 2015, Biodroga had revenues of approximately $22 million and EBITDA of approximately $3 million. “Over the past three years, Biodroga has surpassed industry and segment revenue growth rates and we expect this trend to continue going forward,” stated Mario Paradis, Neptune’s CFO. Considering Neptune’s revenue expectations of $5.1 million for the third quarter ending November 30, 2015 and excluding intercompany sales, the combined entity would have annualized sales of close to $41 million on a pro forma basis.

As part of the borrowing arrangements for this transaction, Neptune’s subsidiary, Acasti, has agreed to support Neptune by granting to the bank a limited recourse pledge in the amount of $2.0 million (the “committed funds”), in accordance with a security agreement with respect to deposits entered into between the bank and Acasti at closing of the acquisition of Biodroga (the “Pledge Agreement”). Consequently, the corresponding amount shall be considered as restricted cash for Acasti until released by the Bank or the outstanding amount is reduced by Neptune.

In connection with the completion of the transaction, Neptune and Acasti have also entered into a licensing agreement for Neptune to market Onemia, a medical food of Acasti, pursuant to which Acasti will receive a royalty payment of 17.5 percent on net sales made by Neptune.