Acme United Acquires Highly Profitable Spill Magic, Inc

Acme United Acquires Highly Profitable Spill Magic, Inc post image

Acme United Corporation (ACU – $24.59) acquired Spill Magic, Inc. for $7.2 million in cash. Spill Magic manufactures a wide variety of spill pickup products that help companies dramatically reduce slip and fall accidents with customers and employees.

The Santa Ana, California based company manufactures cutting edge absorbents, with proprietary formulation, that can handle anything from liquid spills, hazardous material spills and even biohazard spills.

Spill Magic had revenues in 2016 of $6.3 million and EBITDA of approximately $1.4 million. The new brand will immediately be integrated into Acme’s existing first aid business. It is expected to be accretive from day one.

One of Spill Magic’s best selling products is its Spill Response System, which is being used thousands of times every day in national and regional grocery, retail, big box, and countless other retail stores in the United States (see video below).

Spill Magic currently focusses on B2B customers, such as retail, grocery, restaurant, hotel chains and governmental agencies with the goal of reducing slip and fall accidents in their locations. Some of its customers include Target, McDonalds, and Wal-Mart. The latter, for example, uses Spill Magic products in each of its stores.

Founded in 1995, Spill Magic has a 30,000 square foot facility in Santa Ana, CA (about 30 miles south of Los Angeles). This is where the company’s headquarters and its shipping and receiving facilities for the Western U.S. and Pacific Rim are located. It also has an additional facility in Smyrna, TN (about 20 miles south of Nashville) that provides manufacturing and fulfillment for the Central and Eastern U.S.

After the acquisition, the operations will remain at their current locations, and all 22 employees will stay at the company.

Walter C. Johnsen, Chairman and CEO of Acme United, said, “Spill Magic complements Acme United’s existing products within the office, industrial, retail, food service, and safety markets. We intend to expand the business and its distribution through Acme United’s broad customer base, innovation, and global reach.”

Fast Expansion Expected

Similar to last year’s acquisition of Diamond Machining Technology (DMT), Acme aims to grow the new brand rapidly. Acme’s sales people will immediately start to offer the Spill Magic products in chains where they aren’t available yet and with whom the Company already has a good standing relationship.

The goal is also to broaden the distribution to sectors where Spill Magic isn’t available. For example, the products are ideally suited to be used in auto repair shops, where oil, gasoline, transmission fluid, brake fluid, coolants, and solvents present a challenge when spilled.

The products will also be launched online at Amazon.com. Remember that Amazon is quickly becoming one of Acme United’s most important customers. In addition, Spill Magic will be introduced at Staples and Office Depot to include in their catalogues.

Moreover, Acme will shortly introduce a consumer version of the products in small user-friendly containers. This way, spills like syrup, liquid soap, eggs, or paint can easily be swept away.

Finally, Acme aims to geographically expand the availability of the products, as it will introduce them in Europe and Canada.

Next to increasing sales, another key initiative will be to grow Spill Magic’s already attractive margins, by looking at shipping costs, or sourcing costs of raw materials.

Slip and Fall – A $100 Million Per Day Problem

According to the Liberty Mutual Workplace Safety Index, the annual direct cost of disabling occupational injuries due to slips, trips and falls is estimated to exceed $11 billion. The Index reports that falls on the same level are the second most costly occupational injury (estimated annual cost of $6.7 billion).

The average cost from slip and fall is $22,800 per accident, while the average workers compensation claim is $19,000. These numbers often account for medical costs alone. If an employee has an accident, managers must also factor in potential replacement workers, the salary of the unemployed staff member, restricted duty for that person, etc.

Slips are not only a problem for workers. Customers, and even the general public, can also be at risk. If a building occupant or visitor has an accident, there is no limit to what fees (medical, legal, etc.) companies will be responsible for. Those costs add up quickly. Preventing spill falls saves retailers tons of money.

Knowing that over 540,000 slip and fall injuries, requiring hospital care, occur in North America each year, it’s clear that Spill Magic’s products are highly needed. After all, preventing spill falls saves employers and retailers tons of money.

Conclusion

Acme United did it again. It acquired a relatively small, yet highly profitable company in one of its areas of expertise.

Acme’s line of credit with HSBC has an interest rate of LIBOR plus 2.00%. Consequently, at today’s LIBOR rate, Acme pays a little less than 2.5% interest on its borrowings. To borrow $7.2 million – Spill Magic’s acquisition price – Acme roughly pays $180,000 interest annually, while the new brand’s EBITDA was $1.4 million in 2016. A very nice deal to say the least!

Slips & falls are a major safety issue. They are the number one cause of accidents in the home and workplace (30%) of all reported injuries. At the same time, they are one of the most common and preventable injuries, as the basic precaution is very simple and cost effective: a clean and dry walking surface. This is exactly why Spill Magic’s products are very useful and highly needed.

We’re convinced that Acme United will rapidly integrate the new products into its existing offering so that they can be introduced to their vast network. Thanks to Spill Magic’s relatively high margins, it will a solid contributor to Acme’s earnings. Buy recommendation.
ACU =

Smallcaps.us Advice: BuyPrice Target: $36.68Latest Company Report (pdf)
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