It’s a strange world for children who can no longer spend hours browsing toys at Toys “R” Us following their store closures in 2018 but the way toys are marketed is set to get an overhaul with the $32.6 million acquisition of Hobby Warehouse, its brands, and 1 million subscribers by Funtastic (ASX: FUN). 

The proposed transaction would see Funtastic acquire Toys “R” Us and Babies “R” Us which re-entered the Australian market in June 2019 as an online-only offering after Hobby Warehouse secured the relevant licence by Tru Kids Inc, the US-based owners of the “R” Us brands. 

The acquisition would be subject to various conditions, approval from Funtastic shareholders and would be funded by the issuing of $32.6 million worth of FUN shares at an issue price of $0.112 each. 

Alongside the acquisition, Funtastic will raise a further $29m from institutional investors to fund the post-acquisition growth strategy which will enable a significant marketing push to establish Funtastic as the premier toys company in Australia, alongside their existing brands which include Razor scooters, Chill Factor, Moochies, Learning Resources and Floaties. 

“It’s been a challenging few years for Funtastic, however we have finally found the right vehicle to allow our brands and shareholders to accelerate growth within the fast growing online retailing space with two of the world’s most trusted children’s retail brands, Toys“R”Us and Babies“R”Us, which are complementary to our existing brands,” said Funtastic Chairman, Bernie Brookes. 

“The wider range of baby, toy and hobby products that will be distributed via the Funtastic distribution arm will allow us to develop more innovative digital and sourcing strategies to support both our physical and online retail customers in Australia.” 

If approved by shareholders and all planned capital is raised, Funtastic would have an enterprise value of $74 million and $20.7m net cash on hand. 

On completion, founder and CEO of Hobby Warehouse, Louis Mittoni would take over as CEO and Managing Director of the combined group, bringing with him 20 years of expertise in the retail sector, programming and artificial intelligence. 

“Funtastic will, with the research and support of Tru Kids Inc. and its innovative ‘experiential’ store formats in Houston and New Jersey, commence our own physical high experience store attached to our new logistics centre near Melbourne during 2021.

“Together we will build a formidable company with strong foundations over the next several years,” said Mittoni. 

Through FY20, Hobby Warehouse generated $20.6m (unaudited) in revenue across its online stores and eCommerce channels which together contain more than 1 million subscribers across Australia and New Zealand.