Freightways to acquire Big Chill Distribution Limited

Freightways Limited (Freightways) announces it has entered into a sale & purchase agreement to acquire Big Chill Distribution Limited (Big Chill, or the Acquisition). Big Chill is a New Zealand market leader in temperature-controlled transport, specialising in fast moving consumer goods (FMCG) and time critical parcel freight, both chilled and frozen. Big Chill operates a fleet of over 200 temperature-controlled trucks and trailers and delivered more than 2 million shipments in 2018 through its nationwide network of depots and purpose-built cool stores. Commenting on the Acquisition, Freightways' CEO, Mark Troughear, said "the acquisition of Big Chill represents a highly compelling transaction and will provide Freightways with both short and long term growth opportunities, while further diversifying its earnings base. Big Chill's founders and senior management have done a fantastic job growing the business and we look forward to working together, recognising the strong cultural alignment between our two businesses." The Transaction Freightways has agreed to purchase 100% of the shares of Big Chill, subject to Overseas Investment Office approval, with completion of the Acquisition expected to occur in the first half of Calendar 2020. The Acquisition involves an initial payment of $117m, representing 80% of an agreed enterprise value (EV) for Big Chill, and a final payment later in 2022, representing 20% of Big Chill's EV at 30 June 2022 (FY22), which will be calculated by reference to the FY22 EBIT (refer note 1 below) at a multiple based on the growth in EBIT achieved for the 15 months ending 30 June 2021 (FY21) compared to the financial year ending 31 March 2020. When each of the initial and final purchase price payments are settled, completion adjustments will be made in respect of Big Chill's net debt, employee entitlements and working capital positions. The initial purchase price payment represents a 7.9x EV/EBITDA (refer note 2 below) multiple based on the expected earnings from Big Chill in the first 12 months of Freightways' ownership, before synergies, which are expected to be minimal. Acquisition Rationale 1. Big Chill operates high quality temperature-controlled fleets and facilities in an attractive industry, with increasing consumption of fresh and frozen foods. Fresh food is a necessity which exhibits resilience to economic cycles. 2. The national network of temperature-controlled 3PL facilities and delivery fleet that Big Chill operates is a strategic asset in New Zealand's food supply chain and its established cold storage 3PL strategy provides a compelling avenue for future expansion. 3. Big Chill is a leader in express delivery of chilled and frozen products, providing a complementary service offering to Freightways' express package capabilities, which also include a fleet of temperature-controlled vehicles. The Acquisition significantly accelerates Freightways' development of a strategic new vertical market in temperature-controlled express package services, diversifying its earnings base, while also leveraging its core skill set of small parcel delivery, storage and logistics. 4. Given the Acquisition is likely to complete toward the latter part of Freightways' 30 June 2020 financial year (FY20), it is expected to deliver only modest EPS accretion for FY20, but increase to mid-single digit annual EPS accretion, before synergies. Freightways expects to be able to realise a range of benefits from leveraging the respective strengths and areas of expertise of the combined businesses, plus some cost benefits in time. Transaction funding The initial payment of $117m will be funded using existing and increased bank facilities, with settlement expected in the first half of calendar 2020. Upon settlement it is expected Freightways' pro-forma net debt / EBITDA will move up toward 2.00x briefly. Consistent with recent years, Freightways expects the historic trend of debt amortisation to continue, which together with other business initiatives is expected to bring the gearing back to ~1.75x in the short term. Advisers Forsyth Barr is acting as Freightways' financial adviser. EY has provided accounting and tax due diligence services, while Russell McVeagh and Keegan Alexander have provided legal advice. Note: 1. Earnings before interest and tax (not adjusted for IFRS16 lease accounting) 2. Earnings before interest, tax, depreciation and amortisation (not adjusted for IFRS16 lease accounting) ENDS For further information please contact Mark Troughear, Chief Executive Officer, Freightways Limited, +64 9 571 9675 End CA:00343468 For:FRE Type:TRANSACT Time:2019-10-30 16:44:10