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S&W Seed buys international distributor

July 11, 2011 | Comments : 0 Recommended this article: (0)

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Ian Gilson, CFA

S&W Seed ( SANW ) ) buys international distributor:

The company announced on July 8, 2011 that it has purchased its international distributor, Genetics International (GI, owned by Richard Penner), with which it had a relationship for over 20 years. GI has generated nearly 50% of S&W Seed's total revenue in prior years but, due to profitless pricing of alfalfa seed in Saudi Arabia, the company has not used GI in the fiscal year ending June 30, 2011. The owner of GI had decided to sell his distribution network, due to health reasons, and another company had made an offer for the vegetable seed part of his business. GI then offered to sell the rest of the business to S&W Seed. The terms were $165,000 in cash for the customer list, a commission of 3% on certain sales and a two year consulting agreement. An approximate estimate of GI's profit on its S&W Seed sales would be $0.15 million on a normal year from GI sales of $3.5 million.

The agreement extends S&W Seeds geographic range within the Middle East and Africa, includes GI's relationships with alfalfa growers in Turkey and provides access to commodity versions of alfalfa that could be sold at lower prices when the markets will not pay for specialty varieties of seed.

The acquisition of GI will increase margins on sales that are made to GI's customer list, less the 3% commission paid.

For a free copy of the full research report, please email scr@zacks.com with SANW as the subject.

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