Tasmanian salmon farmer Tassal has netted one of Australia's biggest seafood companies in a cash and share deal.

The listed salmon producer has agreed to buy De Costi Seafoods in two stages – the first comprising an upfront $50 million payment.

The listed salmon producer Tassal has agreed to buy De Costi Seafoods in two stages
– the first comprising an upfront $50 million payment. (Photo: Jon Reid)

This is five times De Costi's current annual earnings, which are about $10 million. Tassal will also pay a "growth based earn-out component" through the issuance of new shares to De Costi over three years.

The share component will be inline with the five-times earnings multiple, Tassal said in a statement, and be capped at 10 million new shares.Investors welcomed the purchase, with Tassal's shares surging 7.5 per cent to $3.58 in morning trade on Wednesday.

The acquisition comes after the company said in 2014 it will spend $200 million over five years to grow its domestic salmon production.

"The proposed acquisition of De Costi Seafoods will further build on our domestic salmon capabilities, increase Tassal's vertical integration in salmon, drive increased scale and provide Tassal with access to the broader seafood market," Tassal managing director Mark Ryan said.

"This increased scale will drive further efficiencies and benefits to both Tassal's salmon offering as well as seafood, and uniquely position Tassal for its next phase of growth."

Mr Ryan said Tassal had already reduce its reliance on exports sales, with domestic retail now accounting for about 75 per cnet of Tassal's sales.

The upfront cash payment will be funded through debt and not require any capital raising, Tassal said.

The sale is subject to several conditions, including there being "no material adverse change" to De Costi's business; De Costi managing director George Costi staying at the company for at least three years, and De Costi agreeing to a Tassal restructure.

Tassal chairman Allan McCallum said: "The De Costi Seafoods Business is extremely complementary to Tassal and consistent with our salmon and seafood strategy".

"Following completion of this acquisition, Tassal will be very well placed to access and grow in Australia's $4.3 billion annual seafood market, and support significant market growth in seafood for retailers down the east coast of Australia and South Australia."

Source: The Sydney Morning Herald, Jared Lynch, July 1st 2015