Cordlife Group has signed an agreement to buy out private cord blood bank HealthBaby Biotech (Hong Kong) Co in a move to expand its presence in the industry in Hong Kong and Macau.
Cordlife's purchase consideration for HealthBaby's Hong Kong and Macau operations comprises a cash payment of about US$7 million (S$9.3 million) after adjusting for US$2.5 million in HealthBaby Hong Kong's cash and bank loans that will remain in place.
As part of the transaction, Cordlife will also assume the vendor's debt of HK$138.2 million (S$23.4 million) owed to HealthBaby Hong Kong, which it will similarly treat as an intercompany loan owing to its new subsidiary.
Cordlife said in a filing before yesterday's market open that HealthBaby Hong Kong is a leading private cord blood bank in Hong Kong, where it has operated since 2006, and has stored approximately 20,000 cord blood units to date.
It expanded into Macau the following year. It made an after-tax net profit of about HK$12.7 million over the 12 months ended Oct 31 last year.
The HealthBaby brand was founded in 2001 in Taiwan by Taiwanese entrepreneur Chang Hsiu-kang, who is also the indirect controlling shareholder of the vendor, Stemgen Biotech Holding.
Cordlife said the acquisition comes at a time when Hong Kong is stepping up efforts to boost its birth rate. Hong Kong Chief Executive Carrie Lam, in her first policy speech since taking office in July last year, announced several initiatives on Oct 11 to encourage young married couples to start parenthood early and have more children.
"This is an attractive acquisition, enabling us to become the leader in an important market just adjacent to China," said Mr Michael S. Weiss, head of business development and mergers and acquisition at Cordlife. "At the end of the day, we are paying only a US$9.5 million enterprise value for all of HealthBaby Hong Kong."
Cordlife's cash payment of approximately US$7 million works out to 4.4 times the earnings of HealthBaby Hong Kong over the 12 months ended Oct 31 last year.
"This multiple does not even take into account the potentially substantial top-line and cost synergies we expect in the future, given that Cordlife is already present in Hong Kong," said Mr Weiss.
Cordlife, a Singapore-listed consumer healthcare company, will fund the acquisition using internal resources and external borrowings. It had $53.9 million in cash and cash equivalents, fixed deposits and short-term investments in money market funds as at Sept 30 last year.