Acme United Acquires Canadian First Aid Business
Acme United (US: ACU – $29.89) again succeeded in acquiring a relatively small, easy to integrate first aid business, which will immediately be accretive to the Company’s bottom line.
Acme paid approximately $1 million for certain assets of the Canadian company Hawktree Solutions, which is the official primary distributor of Canadian Red Cross (CRC) products. For over 10 years it has developed hundreds of products, such as first aid kits, emergency preparedness kits, and personal protective equipment that have been featured on the Canadian Red Cross eShop, as well as retail stores and businesses across Canada.
Hawktree reported revenues of approximately $4.0 million in prior years, with very healthy profit margins. Since July of this year, the company was in receivership due to financial misfortune related to COVID-19.
Walter C. Johnsen, Chairman and CEO of Acme United, said, “Hawktree Solutions will expand our product line of first aid and survival items that are focused on devastating fires, floods, and earthquakes. We intend to work closely with the Canadian Red Cross to deliver outstanding products to those impacted by natural disasters.”
A Little History
Hawktree was established in 2012 as an importer and distributor of wholesale and retail health and safety products, including, masks, respirators, eye protection, gowns, swabs, gloves, ventilators and testing devices.
Helped by an early foothold with the Canadian Red Cross, Hawktree re-vamped the Red Cross first aid training program for the organization’s major corporate clients, such as Loblaws, Starbucks, CN Rail and Air Canada, and the 3,500 community training partners licensed by the Red Cross to deliver first aid training.
At the core of Hawktree’s business was a requirement that organizations delivering Red Cross programs also used specific approved products, including first aid kits, CPR devices and gloves, which Hawktree provided.
Hawktree’s business did well, but all of that changed in 2020 with the outbreak of the COVID-19 pandemic. The company’s contract with the Government of Canada, initiated through the call out to suppliers, included the provision of more than 500,000 pairs of goggles and millions of masks, as well as around 400,000 bottles of Quebec-made hand sanitizer. Hawktree also provided millions of pieces of PPE to multiple provincial governments, hospitals, corporations and municipalities across the country. All of this caused Hawktree’s sales to skyrocket from about $4 million to over $64 million in 2020.
However, when demand for COVID-related products dropped again in 2021, the company’s financial results declined sharply. With no large pandemic orders completed and a significant drop in sales to the CRC, costs of sales became higher than sales leading to negative gross margins and a worsening financial condition. All of this resulted in Hawktree being placed into receivership in July 2023.
Although buying a company in receivership may sound a bit as an adventure, in this case, we believe that Acme has again struck gold. It’s important to note that Hawktree was doing very well before COVID with steady sales and attractive profit margins.
Also important to know is that Acme only acquired Hawktree’s website, its inventory with a book value of approximately $1.3 million, and the supply contract with the Canadian Red Cross. Only two people from Hawktree will join Acme. The business will be operated from Acme’s facilities in Laval, Canada.
In the short term, Acme will be re-activating the Hawktree website, filling existing orders, and working with customers on new programs. Moreover, Acme plans to start offering CRC branded products at large retailers in Canada with whom Acme has already established good working relationships. Smallcaps Recommendation: BUY.
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