SPAC has given itself until end-September to find a F&B business that it can acquire
PETALING JAYA: The clock is ticking for Red Sena Bhd to acquire a qualifying asset.
After more than two years of searching, the special-purpose acquisition company (SPAC) has given itself until end of September to find a food and beverage (F&B) business that it can close a deal on.
It was reportedly looking to acquire confectionery product manufacturer Munchy Group and sources said that Red Sena is eyeing to get a hold of Retirement Fund Inc’s (KWAP) stake, which KWAP may be planning to sell.
Back in 2014, both KWAP and Tremendous Asia Partners Group entered into Munchy Group, and today, the combined equity held is about 30%.
However, there is no further information on the valuation or equity size that Red Sena intends to obtain in Munchy Group.
To date, Red Sena has not made any announcements or updates pertaining to a potential qualifying asset (QA).
According to Red Sena’s 2017 annual report, the company has until the end of March to sign a conditional sale and purchase agreement of a branded packaged F&B business in order to secure a QA within the stipulated deadline of Dec 10.
At a recent AGM, it was reported that the board of Red Sena has given itself until the third quarter of this year to sign a conditional share purchase agreement, despite the last practicable window being end-March.
Previously, attempts for Red Sena to secure a QA have been futile as the potential vendors were demanding unattractive valuations or beyond Red Sena’s means.
“Deal making in Malaysia is said to rise, as owners of companies are becoming more realistic in their valuation demands.
“Such conditions may have been favourable to Red Sena,” said an analyst.
For the financial year ended Dec 31, 2015, Munchy Food Industries Sdn Bhd registered a net profit of RM41.34mil on the back of a RM283.67mil revenue.
The company’s net assets for the period totalled RM165.39mil.
Red Sena raised proceeds of RM400mil from its initial public offering in December 2015. An estimated 92% or RM368mil from the total proceeds have been set aside for the purchase of a QA.
Red Sena closed 1.1% lower at 46.5 sen last Friday, traded on a volume of 188,000 shares.
A recent merger and acquisition deal in the consumer sector was Old Town Bhd, which was bought over by Jacobs Douwe Egberts at a valuation of RM1.47bil or price-earnings multiple of 24 times.
Meanwhile, Mamee-Double Decker (M) Sdn Bhd, which was delisted from Bursa Malaysia in January 2012, was taken private by its owners and founders, the Pang family.
Mamee-Double Decker was privatised in a RM179.8mil deal, which represented an estimated price-earnings multiple of 12 times. A year after the company was delisted, a minority stake of 30% was sold to Hong Kong-based private equity firm Headland Capital Partners Ltd for an undisclosed sum.
Should the deal materialises and Munchy Group becomes Red Sena’s QA, Red Sena will then be reclassified as a consumer stock.
Consumer stocks have been on a fantastic run over the years, driven by their growing earnings.
The defensive nature of their business, along with the dividends that they pay, have accorded consumer stocks high valuations.
Consumer stocks are classic case where their business is driven by demographics and product range.
As the Malaysian population grows, consumer stocks too have seen their valuations rise.
The carrot for these stocks have also been their avenue to grow their income through exports.
The share performance of Nestle Malaysia Bhd epitomises the confluence of factors that have been beneficial to consumer stocks.
The multinational company recently saw its profits doubled to a record high of RM133.54mil from the previous financial year’s RM66.94mil, which had subsequently propelled its share price to a stratospheric level.
Its share price closed at RM149 last Friday.
The Johor-based Munchy Group began operations in 1991, producing wafers, wafer sticks and biscuits.
Brothers S.K. Tan and L.K. Tan, who respectively serve as chairman and deputy chairman of Munchy Group, set up the business with an initial investment of RM80,000.
Later, their siblings were eventually roped in to help out with the business, and C.K. is currently the managing director of Munchy Group.
In 1997, Munchy Group established Munchworld Marketing Sdn Bhd as its sole worldwide distributor, with products distributed to more than 50 countries.
According to Nielsen Retail Index Corporate Value Share, as of March 2017, Munchy’s is the number one homegrown biscuit brand in Malaysia.
The company has manufacturing and warehousing facilities that cover more than 400,000 sq ft in Batu Pahat, Johor, with a production capacity of 5,000 tonnes per month.
Munchy Group’s brands include Munchy’s Crackers, Lexus, Oat Krunch, Muzic, Captain Munch and 7Days.
Should Red Sena conclude the acquisition of Munchy Group, that should bring to the end the entire episode of SPACs on Bursa Malaysia.