SINGAPORE - Catalist-listed food solutions provider Neo Group is acquiring a 51-per cent stake in privately held How's Catering for up to $4.4 million in cash and shares, it announced on Monday (Sept 10).
The consideration for Ye Liang How Catering Service Pte Ltd, which operates the How's Catering brand, will be split into $3.63 million in cash and 877,193 new Neo shares at $0.57 per share upon completion. A further earn-out consideration of $0.3 million will also be payable, provided that How's Catering's total net profit for the years ending March 2019 to 2021 is more than $4 million.
The issue price of the consideration shares is a 5.2 per cent premium to Neo Group's volume-weighted average price of 54.2 cents on Aug 29, the last day of trading before the deal was signed. The consideration shares will represent 0.6 per cent of Neo Group's enlarged share capital.
Neo Group said the earnings accretive acquisition will allow it to expand its customer base and promote cross-selling opportunities, tapping How's Catering's established corporate clientele. It added that by tapping on Neo Group's procurement and logistics network, the merger will reap cost benefits and yield additional operational efficiencies.
How's Catering's book value and net tangible asset value as at May 31, 2018, was about $3.1 million, while its net profit before tax for the financial year ended Nov 30, 2017, excluding any extraordinary gain, was about $1.2 million.
The deal requires, among other conditions, completion of due diligence and board approval. No approval from Neo Group shareholders is necessary. The parties have four months to meet those conditions or extend the long-stop date, or the deal will lapse.
Said Neo Group chairman and chief executive officer Neo Kah Kiat: "As our food catering business remains the main growth driver, we are confident that the expertise and track record of How's Catering's experienced management team should propel us to strengthen our current suite of catering brands. This will also enable us to build a steady platform to pursue inorganic opportunities for food catering as well as our other business segments in the future.
"With that said, we will continue to adopt a prudent and disciplined approach when prospecting for potential targets with the objective of driving bottom-line growth."