TAAT Global Alternatives, the maker of Beyond Tobacco, a non-nicotine alternative to tobacco, has entered into an agreement to buy HLND Holdings, which is the parent of a convenience and tobacco wholesaler in Ohio. HLND currently owns a network of more than 5000 convenience stores through direct and indirect relationships (including a network of regional sub-distributors).
Setti Coscarella, CEO of TAAT, told The Armchair Trader Monday that the deal was important in that it reduced TAAT’s price to sales ratio down from around 60x to 1.5-2.0x. It also brings with it a distribution network which TAAT can use to road test new products and branding, and also to monitor for new trends within the market the company can capitalise on.
From 2019 to 2021 HLND realised at least 10% growth of its net revenues each year, with net revenues for calendar 2021 amounting to CAD $87,181,400.32 (approximate conversion from USD as at February 23, 2022), and continues to be profitable. TAAT anticipates that by acquiring HLND it could fortify its existing revenue sources as well as its portfolio of assets as TAAT continues to expand both in the United States and internationally.
Larger scale commercialisation of TAAT products
TAAT said it plans to convert certain aspects of its supply chain into wholly-owned internal business units, which aligns with the practices of current leaders in the global tobacco industry. With HLND’s seasoned executive team and personnel in sales, logistics, and product development, TAAT can leverage these invaluable skill sets as part of commercialising TAAT products on a larger scale.
“In competitive industries such as tobacco, long-term success largely depends on how self-sustaining and independent your operations are at a macro level,” Coscarella explained. “TAAT has proven quite popular in the Midwest, and I believe that by owning a regional fulfilment centre we will be able to distribute our products more efficiently and more profitably as we continue to build market share.”
Coscarella described HLND as a ‘sand box’ which would allow for more informed product development and brand positioning, while also allowing the company to generate sales data for products that can be shared with other distributors. He said a distribution asset in Ohio was important, as the state is the pre-eminent market in the US for consumer packaged goods (CPG). “This will allow us to see what works, and what doesn’t work,” he said.
The purchase price to acquire HLND will be equal to CAD $6,604,000 or the equivalent of approximately USD $5,200,000, representing a valuation of CAD $8,890,000 or the equivalent of approximately USD $7,000,000 less CAD $2,286,000 or the equivalent of US $1,800,000 debt outstanding on the HLND line of credit.
TAAT moving into the heat not burn category
Shunho’s US subsidiary is to supply a proprietary heat-not-burn device on a “white-label” basis, which is to be commercialised in the United States under the TAAT brand name. Uniquely, this device will offer reverse compatibility with heated tobacco sticks offered by the TAAT’s competitors, as well as the TAAT Original, Smooth, and Menthol heatable sticks.