E-commerce toy retailer Toys‘R’Us (ASX: TOY) is expanding its portfolio by acquiring the key assets of RIOT, a 50-year-old arts and crafts retail brand. TOY will acquire intellectual property assets (domain names, business names, trademarks) and stock on hand. The Company plans to combine the RIOT assets with its existing operations to achieve efficiencies through economies of scale.
To complete this acquisition, it will secure up to $5 million in funding from a US-based investment fund. It will pay $247,000 cash to RIOT and issue shares worth $350,000 at $0.010 per share, subject to shareholder approval. As part of an Earn Out agreement, it plans to offer additional shares or options based on performance, up to $500,000 annually for two years.
TOY CEO Penny Cox said, “I am delighted to share the news of TOY’s acquisition of RIOT with our shareholders. The acquisition of the key assets of RIOT represents an important strategic step in our ongoing transformation to be a diversified House of Brands. RIOT’s strong brand recognition, loyal customer base, and high-margin product lines align perfectly with TOY’s growth objectives. We’re merging RIOT’s product range and passionate customer base with our cutting-edge e-commerce platform, creating a powerhouse for innovation, creativity and inspiration. This acquisition expands our product portfolio and strengthens our competitive position within the online retail sector.”
RIOT’s focus on high-quality arts and crafts products with impressive profit margins aligns well with TOY’s strategy of acquiring profitable and complementary brands. The RIOT vendors include several high-net-worth investors. The consideration will see the existing RIOT shareholders becoming shareholders in TOY, subject to shareholder approval.
RIOT’s extensive customer base, including approximately 540,000 retail and 2,400 wholesale customers, complements TOY’s demographic, enabling cross-marketing opportunities to drive significant sales growth across various product categories. Integrating RIOT’s operations into TOY’s existing infrastructure promises operational efficiencies, resulting in economies of scale and improved overall group efficiencies.
On the funding front, TOY has reached an agreement with Mercer Street Global Opportunity Fund II LP (Mercer), a US-based investment fund managed by C/M Capital Partners, LP, for up to $5 million of funding. Mercer plans to provide TOY a total funding of $1.5 million through a structured approach. This funding includes $200,000 through a Private Placement at $0.0094 per share, $600,000 as an Unsecured Loan repayable within six months, and $700,000 via Convertible Securities, pending approval from shareholders.
Under further tranches, Mercer will provide up to a further $3.5 million in convertible securities subject to the mutual agreement.
Cox added, “As US holders now represent approx. 18.5% of our share register, with US-based Mercer coming onboard, it highlights the international strength of the Toys”R”Us brand. Following the successful resurgence of Toys”R”Us in the US, we’re work tirelessly to replicate this in Australia.”
Furthermore, signalling massive confidence in the new business strategy and TOY’s future, Cox herself will inject $100,000 of funding into TOY via an unsecured convertible loan agreement.
Alinda is a Business Reporter for The Sentiment
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