Koufu plans to acquire fried food, dough product supplier for $22m

The Koufu group will fund the purchase price using its internal resources. PHOTO: KOUFU GROUP LIMITED

SINGAPORE (THE BUSINESS TIMES) - Koufu Group has proposed to acquire Deli Asia, Delisnacks, Dough Culture and Dough Heritage for about $22 million.

The four companies make up the Deli Asia group, one of Koufu's biggest suppliers of fried food and dough products, said the mainboard-listed firm, which operates and manages foodcourts, coffee shops and a mall.

The Koufu group will fund the purchase price using its internal resources, including net proceeds received from the company's initial public offering.

Founded by Alex Ong and his wife Irene Lee, the Deli Asia group supplies frozen and partially fried food products to restaurants and food and beverage (F&B) stalls at foodcourts, coffee shops and hawker centres.

It also licenses its Delisnacks brand to about 60 franchised stallholders at hawker centres and coffee shops that sell its food products at their stalls.

In addition, under its Dough Culture brand, the group operates seven retail kiosks in Singapore at locations including suburban malls. These kiosks sell fried food and dough products such as banana fritters and related products such as Chinese desserts and drinks, directly to consumers.

Koufu will become the sole shareholder of each of the four target companies upon completion of the proposed acquisition.

Meanwhile, Ms Lee and Doreen Ong - two of the three existing shareholders of Deli Asia group - have signed a one-year service agreement with Koufu to join the group as company advisers when the acquisition is completed. Thereafter, they will continue to provide consultancy services to Koufu for one year.

Ms Lee and Ms Ong each have more than 25 years of experience in the F&B industry. The proposed deal will thus allow Koufu to "tap into the expertise and experience of the vendors", it said.

The four target companies' business has been resilient during Singapore's circuit breaker as they cater predominantly to a mass consumer takeaway market, Koufu added.

The Deli Asia group has production facilities and a warehouse in Singapore that "drive high productivity" in the manufacturing and storage of fried and partially fried food and dough products, Koufu said. These products are also highly complementary to the range of dim sum items Koufu is selling at F&B stalls in its foodcourts and coffee shops.

"Based on the complementary products and manufacturing processes of the target group, the proposed acquisition will provide important synergistic effects for Koufu, and will broaden Koufu's organic manufacturing capabilities, inject intellectual know-how to increase productivity within its existing food production and storage processes, and strengthen the security of its supply chain," Koufu said.

The proposed deal will also enable the mainboard-listed group to accelerate its business expansion plan and diversify its income streams, as well as improve its resilience towards future shocks and economic uncertainties, Koufu added.

Koufu said the "timely" acquisition will allow it to immediately use the Deli Asia group's production facilities for its fried food and dough products before the expected completion of Koufu's new headquarters and integrated facility this year.

Once the integrated facility is completed, Koufu plans to gradually shift the target group's production facilities and warehouse there.

This is to consolidate the Deli Asia group's food preparation and processing with Koufu's own central kitchens to optimise economies of scale and operating synergies.

Koufu said the consolidation of its ordering, production, product research and development and distribution processes was a key driver in the investment in the new headquarters and integrated facility.

Koufu chief executive Pang Lim said the "synergistic and accretive" proposed acquisition will be in line with the company's vertical integration strategy, and help Koufu develop its supply chain of "well-loved oriental favourites" sold at its foodcourts, coffee shops and quick-service restaurants.

"This will add a greater variety of quality choices to our dim sum, bakery and confectionery items for all our consumers," Mr Pang said.

In terms of creating new revenue streams, the proposed deal will give Koufu immediate access to third-party businesses locally and overseas, as well as provide opportunities to expand the F&B retail business to include the supply of frozen and partial fried food products to supermarkets and export markets.

In addition, Koufu intends to expand the network of retail kiosks under the Dough Culture brand from the current seven to at least 20 in the next five years, Mr Pang said.

Deli Asia founder Mr Ong said he believes Koufu, as an established F&B player, "can take the brands further and bring the business to an all-new level, with our combined expertise, network and manufacturing capabilities".

The latest available unaudited net tangible asset value attributable to the shares of the four target companies was $7.1 million as at April 30, 2020.

Shares of Koufu were trading at 69.5 cents as at 3.09pm on Wednesday (July 1), up 0.5 cent or 0.7 per cent, after the announcement.

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