Imminent Mergers
Verus has been in late stage merger talks for several months and is now stating the first merger will be announced shortly after the recapitalization which is currently in process.
9/24/18
Verus can confirm that it is in very late stage discussions with two M&A candidates, one that would represent a line extension into existing markets; and a second that would create significant vertical integration opportunities and new facilities on two continents.
1/14/19
Investors have asked about the timing of M&A at Verus? In our Q3 earnings release, we referenced two late-stage candidates. Following our recapitalization, we expect to quickly complete the first M&A deal, so nothing has changed in our M&A strategy. Expect something soon.
In April of 2018 the EU banned trade with what equated to 35% of Brazil's poultry producers. High tariffs were placed on many of the remaining exporters. The reason given was food safety and environmental issues, more so the latter and both highly contested. Obviously this left a void for many of these producers and a need to acquire new customers if they were to maintain production and sale levels. Some factories were focused primarily on the EU and lost almost their entire customer base overnight.
Interesting that it was in June, after one of our CEO's many travels which included South America, that a business proposal from South America is mentioned in a PR. In August we were informed that for the first time Verus is in talks with a merger opportunity. In September Verus confirms late stage merger negotiations with multiple parties and facilities on two continents.
Also in September Anshu posts a corporate presentation on Twitter which is later added to the Verus Foods home page. This presentation is packed with clues as to the direction Verus is heading and poultry is a predominant theme throughout. With the logistics and distribution in place they list production and manufacturing as the next step. They list the next supply line to come from the US and Brazil and state they expect poultry to become their leading category. At the bottom of the presentation they state "Our initial markets account for 15% of global poultry imports, a major category that Verus is just entering.
This merger has been described as vertically integrating so production or manufacturing is a given. With such a focus on chicken in the presentation I think poultry production is a pretty safe bet.
So what kind of revenue comes from a poultry production facility? I looked at Aurora, one of the companies banned by the EU. Aurora runs an interesting business consisting of 13 individual affiliated cooperatives, each one having collective ownership and democratic control. Yearly revenue for 2017 was around 2 billion USD, that equates to approximately 140 million per facility.
Verus has said this merger involves 2 facilities on two continents. Do I expect a merger with 300 million revenue? No but revenue should definitely be substantial.
It seems to me that Anshu's greatest strengh is in his connections in the middle East, likely from his past experience of building a 100+ million dollar business in the same region. The problem has been financing, understandable with the legal issues under RBIZ that were just resolved in May. He said in reference to the latest contract of 1 million a month, which thankfully has been fully financed with trade financing, that this was just one of many of these types of contracts available to him with further financing. He seems to have the demand side well under control and could offer a lot to a supply side merger, IMO.
IR has said repeatedly that all this is still on the table and in the final stages. Whether this ends in a merger, a partnership, or with Anshu's resent new CEO position announced possibly a reverse merger, it should have a very substantial material effect on Verus.
Get your popcorn!
