Lakeland Signs On to Acquire Brazilian PPA Supplier for $12.5 Million

Protective apparel manufacturer Lakeland Industries Inc. announced Feb. 19 that it has signed a letter of intent to acquire Qualytextil S.A, a protective apparel supplier in Salvador Bahia, Brazil. Subject to the negotiation and execution of final documentation, the Ronkonkoma, N.Y.-based Lakeland said it anticipates paying an initial purchase price of approximately USD $12.5 million for the company, which serves Brazil's protective clothing market in the following areas: firemen's turnout gear; conductive and electric arc garments; chemical protective garments; occupational, multilayer, and waterproof operational garments; and aluminized and molten metal lines of protective clothing.

"The Qualytextil acquisition in Brazil would allow Lakeland to expand worldwide in one of the ten most important emerging economies," said Lakeland CEO Christopher Ryan. "Brazil is a new market which is rapidly increasing its GDP by about 5% per year. Qualytextil has been operating in the market for 7 years, and can provide Lakeland with an in-house sales force of 20 employees and 28 outside sales representatives to cover the entire country, selling directly to the end user." Ryan added that Qualytextil also has a contract with Petrobras, a large Brazilian petroleum company, to supply fire-retardant overalls through January 2010 and has a store located inside the Petrobras facility. He said Lakeland would be able immediately to access a sewing operation of 100 employees and 20 additional in-house salespeople to manufacture and sell Lakeland's own complete disposable and chemical product lines.

Marcos Vieira, president of Qualytextil, said, "Having Lakeland as our parent company will give us the resources we need to expand our business into other Latin American countries and new products. Qualytextil can also provide Lakeland with a distribution channel to reach those small industrial areas spread throughout Brazil. . . . The plant can also be used to warehouse Lakeland's products such as the chemical and cut resistant gloves, and other Lakeland products that may not be subject to high Mercosur import duties."

Lakeland said that pursuant to the letter of intent, it expects the purchase price to include an earnout based on Qualytextil's 2010 EBITDA and for the acquisition to be accretive to Lakeland's earnings per share. Adjusted Proforma EBITDA, as defined in the agreement, for the twelve months ended December 2007 is approximately USD $1.8 million. Sales for this period were approximately USD $9.8 million, Lakeland reported, with current gross margins of 50 percent. The company added that the Salvador Bahia government provides tax incentives, the region's labor rates are favorable, and the location of Qualytextil's operations are convenient for transporting garments economically throughout the country. The transaction is still subject to confirmatory due diligence, execution of definitive legal documentation, regulatory and other third party approvals and such other conditions as may be contained in the Definitive Agreement of Purchase and Sale. Assuming the execution of definitive documentation, the closing of the acquisition is expected to occur at the end of April.

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