Derrimon makes first foreign acquisition - Buys two supermarkets in New York
Derrimon Trading Company is pumping US$9 million ($1.3 billion) into the acquisition of Brooklyn-based grocery store businesses, FoodSaver New York and Good Food for Less, which sees the distribution company founded by Derrick Cotterell expanding beyond its home border for the first time.
The deal is expected to close within this quarter, part-financed by proceeds from the $3.5-billion additional public offering of shares, or APO, that Derrimon currently has on the market.
Derrimon has incorporated a New York subsidiary, called Marnock LLC, as the vehicle for the acquisition of the Brooklyn-based operations. The cash-and-shares transaction will see Oralcrys LLC, an entity beneficially controlled by the former owner-operator of those businesses, taking a 20 per cent stake in Marnock.
The new assets are also expected to immediately add 25 per cent to the group’s top-line income. To ensure customer retention, Derrimon will work closely with the previous owners while it gets familiar with the New York market and its preferences.
“It’s a transitional role,” said Cotterell, the chairman and CEO of Derrimon. “The owner has a good relationship with the customers, so that helps us. We’ll leverage his relationship, and with our management skills, we expect business to be good,” he told the Financial Gleaner.
FoodSaver and Good Food join the Sampars and Select supermarket brands operated in Jamaica by the two-decade-old distribution company. Derrimon also owns flavour maker Caribbean Flavours & Fragrances Limited and pallet maker Woodcats International Limited. Marnock joins the family as the fifth directly held subsidiary.
The acquisition of the two businesses, both located at 83rd Street, gives the company the foothold it needed to attain the goal of entering the New York tri-state area, where its past contact has been confined to an online sales initiative through which persons in the US could buy goods for their families online and have them delivered to homes in Jamaica.
“We need more income out of the US. It is a big growth area for us, and we want to service Caribbean and African people living in the US out of those locations in New York,” Cotterell said, in an indication that while Derrimon is going after business in the tri-state, it eventually plans to widen its reach in the US market.
“The stores will also be used as fulfilment centres for anyone ordering goods through Sampars online,” he added.
FoodSaver, which sells groceries, fresh produce, fresh fish and frozen seafood, generates US$25 million in annual sales primarily from supplying restaurants. Good Food NY is a speciality supermarket with products tailored to the needs of the African and Caribbean diaspora located in the New York tri-state area. The business currently generates US$1.16 million in sales.
As part of its growth strategy for the new acquisitions, Derrimon plans to stock more Jamaican made products and fresh produce in the short term, but is also looking to build out an online shopping platform to drive up sales.
“We have thoughts about how we can grow the business, but right now its consolidation, transition, get the systems working, and then we look to grow,” Cotterell said.
Derrimon’s APO is structured to raise US$3.5 billion. The offer is fully underwritten by lead arranger and broker Barita Investments Limited. Around a third of the APO proceeds, $1.2 billion, will repay debt, while $1.1 billion will fund the purchase of FoodSaver and Good Food for Less, while another $500 million will fund the expansion of retail operations in the parish of Clarendon, and $200 million will be poured into the Delect food brand and product line. The rest is for working capital and covering the cost of the APO transaction.
Derrimon is a near $13-billion company by revenue whose growth over recent years has been fuelled by M&A. Up to September 2020, group revenue was close to flat over the nine-month period at $9.6 billion, from which Derrimon earned a profit of $258 million attributable to owners, or more than 9 cents per share, reflecting a gain of 28 per cent at the bottom line.