SINGAPORE - Supply chain company Teckwah Industrial Corporation is acquiring a digital graphics print provider, Profoto Digital Service (PDS), for $13 million.
This will see the group acquiring shares in the issued and paid-up share capital from vendors Johnny Pranata and Lock Hui Koon, who each own a 50 per cent stake in PDS, the group said on Monday (April 1) in a bourse filing before the market opened.
As a condition, the vendors will transfer to PDS their 80 per cent stake in Profoto Malaysia Sdn Bhd - which provides similar services to PDS - for a nominal sum, after which the Malaysia-incorporated firm will be PDS's subsidiary. The remaining 20 per cent of Profoto Malaysia will still be held by an unrelated third party. Profoto Malaysia has an issued and paid-up share capital of RM1.5 million ($498,000), comprising 1.5 million ordinary shares.
PDS, which has an issued and paid-up share capital of $700,000 comprising 700,000 shares, is in the business of providing digital graphic prints, event set-ups, and window display and project management services. Its customer base lies mainly in the fashion and beauty industry, as well as shopping malls.
Through the acquisition, PDS will leverage Teckwah's network of contacts in Asia-Pacific to expand and tap synergies. Meanwhile, Teckwah believes the acquisition will allow it to extend its supply chain capability and add value to its customers.
The acquisition will be carried out in two tranches. For the initial tranche, Teckwah will acquire 70 per cent or 490,000 shares in PDS for $8.1 million. This comprises Mr Pranata's 50 per cent stake and Mr Lock's 20 per cent stake.
For the final tranche, Teckwah will buy the remaining 30 per cent or 210,000 shares held by Mr Lock, which may be sold via a call option or put option for $3.9 million.
The call option is exercisable within three years from the completion of the initial tranche, which will take place on April 30, 2019, or a date agreed upon by both the group and the vendors.
The put option may be exercised during the one month period after the date of issue of PDS's audited accounts for FY2021 or Jan 31, 2022, whichever is earlier. This is provided that the operating profit before tax exceeds the profit guarantee in respect to two out of three of the FY2019, FY2020 and FY2021 financial years.
Mr Lock has also guaranteed that that PDS's operating profit before tax shall not be less than $1.25 million, $1.28 million and $1.58 million for each of FY2019, FY2020 and FY2021 respectively.
If the operating profit before tax exceeds the profit guarantee in these fiscal periods, Mr Lock is entitled to receive 50 per cent of the excess operating profit before tax from PDS within one month from the date of issue of PDS's audited accounts for the relevant financial year.
However, if there are shortfalls, Mr Lock will pay PDS an amount equal to the shortfall within one month from the month from the date of issue of PDS's audited accounts for the relevant financial year. Teckwah has the right to set off any shortfall against the fixed deposit amount of S$1 million.
The profit guarantee looks to safeguard Teckwah's interests, allowing the group to have "legal recourse against the vendors" in the event that Mr Lock is unable to pay the shortfall. For the guarantee, the track record and past financial performance of PDS, its audited financial statements for fiscal 2017 and fiscal 2018 and intrinsic potential for growth were taken into account, the group said.
The acquisition is not expected to have any material effect on the net tangible assets per share or earnings per share of the group for the financial year ended Dec 31, 2018, assuming it has concluded at the end of the fiscal year.
Shares of Teckwah last closed at $0.40 apiece on Monday, up one cent, as at 10.20am.