Fashion manufacturer Bagir Group is to buy the remaining 50% stake in Nazareth Garments, the joint venture owner of its manufacturing site in Ethiopia, for $1.9m in order to consolidate its presence in the country which it believes has strategic advantages due to its duty-free export status.
The stake will be bought from its joint venture partners, Kassaye Mekuria Mindesyil and his family, Senait Bekele Zewudu and Lamenew Mekuria Mindesyil together with other members of their families who are minority shareholders.
The acquisition is conditional on certain procedural share registrations in Ethiopia and capital gain tax clearance on the sellers, which are expected to be completed on or before 30 April.
Following completion of the acquisition Bagir will own 100% of Nazareth Garments after it bought the first 50% stake in November 2014, and it has since invested in developing the manufacturing site with new machinery, this resulted in the company completing its first international export order for Swedish clothing retailer H&M in late 2016, along with a trial order for Haggar CLothing, a US men's trouser retailer.
Over the next five years, the company intends to invest and expand Nazareth Garments further. The group said that Ethiopia has strategic advantages in terms of its duty-free export status for sales to the UK and US, low production and energy costs and proximity to Europe, which it believes will become a viable option from where international retailers will source significant volumes.
The acquisition together with the planned investment in the first stage of the expansion plan will come to about $3m and will be funded by the proceeds from recent fundraising and the company's asset backed financial headroom.
The £1.9m will be paid in instalments, with $600,000 being paid on signing of the agreement and the $1.3m balance will be be paid on or before 30 April.
For the year ended 31 December 2015, Nazareth Garments generated revenue of $1.38m and profit after tax of $590,000.
Shares in Bagir Group were up 1.75% to 4.07p at 0801 GMT.