Issue 21.9, Auckland, 25 October 2021
We introduced you to Manuka Biosciences a few weeks ago. We first invested in Manuka in 2017. Earlier this year, we took on an even larger stake in the company, with high expectations for a reasonable multiplier return in the next 18 to 24 months.
The first newsletter, which you can find here, introduced the product, processing and potential of what I have termed “Manuka Gold.”
In this edition of the Global Investor, we expand upon how we have structured investment in Manuka Bioscience for Obris members to glean from this established and growing market disruptor.
Our model for investing in Manuka Biosciences is consistent with most Obris investments.
It was bespoke from the beginning, curated by my business partner and financial structuring genius, Marvin Yee.
It has all the traits of a deal that is designed to maximize return for our investors in a relatively short period of time.
Like most Obris deals, it began out of a relationship. While we are courted for innumerable deals, very few opportunities become Obris deals. Most of our investments originate from or are recommended to us by people we know and trust.
Marvin and Manuka Bioscience’s founder and CEO, Stuart Cairns, are members of Auckland’s elite Northern Club, a 150-year-old club where Auckland’s business and political leaders gather.
Stuart is a tenured investment banker and entrepreneur who has successfully developed and led multiple companies. His track record has included significant mergers and acquisitions in New Zealand, Australia and the U.K.
In 2017, Stuart crafted the vision to disrupt New Zealand’s centuries old and latent Manuka oil production.
Oil from New Zealand’s Manuka tree is the highest quality and potency of oils in the tea tree family, oils that have significant medical applications and proven effectiveness in an ever-expanding body of treatments including anti-bacterial, anti-fungal, anti-parasitic and anti-inflammatory. It is also applied to promote comprehensive immune health.
Recognizing that New Zealand’s Manuka oil, and particularly oil from the East Cape of New Zealand’s North Island, is up to 33 times more potent than Australian tea tree oils, Stuart was determined to unite the supply chain from growing to processing to distributing Manuka oil in the world market.
Armed with a business plan, his own resources to start the company and a small cadre of experienced professionals, Stuart reached out to Marvin one day at the Northern Club.
Stuart presented Marvin with an industry that was ripe for consolidation from which a few key players will dominate the world market. Stuart confidently projected that Manuka Bioscience will be a winner.
Marvin recognized that Stuart could pull off such a grand pursuit. A key consideration was the fact that Stuart was a banker and businessman not unlike Marvin himself and as such, our involvement would result in a practical return on investment without funding someone’s passion project.
Marvin also recognized the inherent risks including financial consolidation, competition from Australia, crop fragility and pricing.
Bearing that in mind, we structured a deal to provide our investors with a convertible note which generated a healthy 18% per annum interest over two years which was guaranteed by a general security arrangement against the company and also personally guaranteed by Stuart himself against his residential and other property assets.
This debt was successfully paid out and as such, derisked the company significantly for our next investment. Our investors effectively got all of the upside of venture debt with none of the associated risk.
The next investment was the form of a convertible note. Still not wanting to make a straight equity investment in a relatively early stage company, our second convertible note only converted upon certain key conditions being met, namely that the company was to achieve a continuous profit after 18 months.
Additional conditions were set to protect our investors. If the company did not meet key conditions, the note would continue to generate compounding interest for another 12 months.
Finally, if the required results were still not achieved, the loans would be called over a 24 month period to ensure that the company would not falter due to a balloon call.
Fast forward 18 months and we have now converted. The company is doing well and we have even obtained a board seat. The company is now in the process of listing on the ASX next year at at least 9 times our converted valuation.
Manuka Bioscience has carried out its vision of growth through strategic acquisitions and expansion. Manuka Bioscience now has significant physical assets and controls the supply coming out of the East Cape.
The company is approaching $10M in revenue per annum. It has also conducted two major acquisitions and has experienced a significant increase in valuation. An IPO could bring a valuation in excess of $100M.
We have expanded Obris’ investment over the past two years including a significant investment a few months ago. We did so expecting an exit within the next 18 months.
This is how we structure an Obris deal. We strive to curate deals that will produce significant returns for our investors.
Deals are one key part of our quest to provide Obris members with Freedom, Wealth, Adventure and Connection.
Sincerely,
James on Behalf of the Obris Team
