Summary

  • HF Foods defines Searay's CAD$47,921,740 base price as five times CAD$9,556,348 of baseline Adjusted EBITDA plus CAD$140,000. The multiple belongs to that equation, not to every amount that may change hands after closing.
  • The closing record includes CAD$38,365,392 of cash and 1,701,871 HF Foods shares priced at US$4.00, but the shares sit inside escrow, performance and possible cash-settlement mechanics. A 90-day post-closing statement can also reset cash consideration for debt, cash, expenses and working capital.
  • A two-year growth earnout and a separate three-year Costco earnout remain outside the base multiple. HF Foods also says Searay's metric is standalone, pre-acquisition and excludes purchase accounting, acquisition financing and public-company costs.

HF Foods completed its purchase of Searay on 31 August and announced the closing three days later. The release supplies a number built for repetition: approximately CAD$47.9 million at about five times Searay's 2025 Adjusted EBITDA.

The underlying contract is more precise. It names a base purchase price of CAD$47,921,740, calculated as five times baseline Adjusted EBITDA of CAD$9,556,348, plus CAD$140,000. That precision is useful because it marks the edge of the claim. Five times describes one defined numerator and one defined denominator. It is not an all-in valuation of every future payment, nor a forecast of the combined company's earnings.

Closing transferred control. The final economic receipt is still being assembled.

The multiple begins and ends with a formula

The closing Form 8-K says HF Foods acquired all of Searay Foods and Morgan Foods. The base consideration was split between CAD$38,365,392 in cash and 1,701,871 HF Foods common shares issued at closing and priced at US$4.00 per share.

That mix does not turn the quoted multiple into a cash multiple. The purchase agreement places the shares in escrow. They can be reduced for a post-closing deficit, indemnification or performance shortfall. If the remaining shares qualify for release but HF Foods' share price is below the contractual target on the measurement date, the company must instead purchase them for cash at the target price.

The same instrument can therefore end as released equity, cancelled equity or a later cash obligation, depending on results, claims and market price. None of those later states changes what the five-times headline measured at signing: the base-price formula.

Closing is followed by a second price record

Cash consideration at closing used estimates for Searay's debt, cash, third-party expenses and net working capital. Within 90 days, the buyer may deliver a post-closing statement recalculating each item. The sellers then receive a 30-day review period. Disputes can pass through negotiation to an independent Canadian accounting firm whose determination is binding within the positions submitted.

If the final calculation falls below the estimate by more than the working-capital collar, escrow shares move back to HF Foods and a shortfall beyond them becomes cash due from the sellers. If the final calculation is higher by more than the collar, HF Foods pays the excess in cash.

This is not a reason to call the announced price wrong. It is the contractually designed route from an estimated closing statement to a final closing statement. Until that route is complete, CAD$47.9 million remains the disclosed base price, while the adjusted cash component remains a separate receipt.

One performance test can change the form of consideration

The first post-closing performance mechanism protects the escrowed share consideration. It tests Searay's average Adjusted EBITDA across two consecutive twelve-month periods. At 97% or more of baseline, the remaining net escrow shares can proceed to settlement. Below 97%, the share count is reduced by a value equal to five times the difference between baseline and actual average Adjusted EBITDA.

The market-price branch comes next. If HF Foods' shares trade at or above the target on the measurement date, qualifying shares are released. Below the target, HF Foods purchases the remaining shares for cash at that target price and cancels them.

This mechanism is easy to mislabel as one ordinary earnout. Economically, it also determines whether previously issued escrow consideration survives and whether its settlement remains in shares or turns into cash. The future cash exposure cannot be read from the closing share count alone.

Growth and Costco use different EBITDA buckets

Two additional payment streams sit outside the base price. The growth earnout runs for two post-closing years. It pays 50% of Adjusted EBITDA above the applicable annual threshold, excluding EBITDA from Costco sales. Growth above 10% is excluded from the calculation, limiting the eligible band.

The Costco earnout runs for three years. It pays, dollar for dollar, annual EBITDA attributed to eligible Costco locations on a standalone carved-out basis, subject to a forecast cap and minimum post-closing metrics. The agreement expressly removes that Costco EBITDA from both the base-price denominator and the growth earnout.

That separation prevents one operating dollar from serving three price formulas. It also creates three monitoring questions: whether the baseline business holds its performance, whether non-Costco growth clears its threshold, and whether Costco activity produces carved-out EBITDA under its own cap.

The 27 August amendment adds financing priority to the picture. Earnout payments are subordinated to the buyer entities' credit facilities, and deferred earnout payments carry simple interest at SOFR plus two percentage points. A payment can therefore be economically earned yet delayed, with its cost changing while lenders remain senior.

Accretion has not reached combined accounts

HF Foods says the acquisition is expected to be immediately accretive to margins and earnings per share. The same closing release sharply limits that statement. Searay's Adjusted EBITDA is standalone and pre-acquisition, follows Canadian accounting standards that differ from US GAAP, and excludes purchase accounting, acquisition financing and public-company costs.

The company cannot yet reconcile its forward-looking accretion measures to GAAP without unreasonable effort. It lists purchase-price allocation, intangible-asset amortisation, acquisition and integration costs, contingent-consideration fair value and currency movements among the unknowns that could be material. Required historical and pro forma accounts can arrive later through an amendment to the 8-K.

HF Foods' own June Form 10-Q reported US$323.8 million of quarterly revenue, US$55.0 million of gross profit, US$2.8 million of operating income and US$13.6 million of Adjusted EBITDA. Its definition excludes capital spending, working-capital cash needs and debt service. Those figures provide scale, but they are not a bridge to Searay's differently prepared baseline metric.

The credit paperwork keeps one final boundary intact. Lenders allowed Searay entities to join the loan documents and grant required liens within five business days after closing rather than immediately, and the filing says the acquisition reserve was released. It does not identify a particular revolver draw as the source of the CAD$38.4 million cash payment.

HF Foods has completed the legal acquisition. Investors now have a base-price receipt and a map of the remaining ledgers. They do not yet have a final bill or a combined earnings record.

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