CATALIST-LISTED ISOTeam will buy Coney International Ltd's entire stake in Pure Group, comprising six construction management firms, for S$24 million in cash and shares.
It has entered into a conditional sale and purchase agreement (SPA) with Coney International Ltd and Peter Dodson Coney, with the purchase funded by 50 per cent cash and 50 per cent ISOTeam shares by way of non-listed transferable warrants.
The cash portion will be funded by fund raising and internal resources, while 47.4 million ISOTeam warrant shares will be issued to Coney at S$0.2532 per share, which represents about a 1.24 per cent premium to the volume weighted average price of S$0.2501 for trades done on July 23, 2019.
The S$24 million purchase price was calculated based on six times the average earnings before interest and taxes (EBIT) of Pure Group for the period from July 1, 2016 to March 31, 2019 of approximately S$4 million.
The price is subject to adjustments if Pure Group's audited average EBIT for the same period is less than S$3.6 million.
Its total EBIT for the period was about S$4.3 million. No independent valuation was conducted for Pure Group.
The deal covers Coney International’s entire equity interest in Pure Group, which consists of Pure Group (Singapore) Pte Ltd (fully-owned by company) , Pure Projects (Philippines) Inc (99.9 per cent-owned), Pure Projects Construction Advisory Shanghai Co Ltd (fully-owned), Pure Projects Management Sdn Bhd (fully-owned), Pure Projects SEA Pte Ltd (fully-owned) and Pure Projects SEA Ltd (49 per cent-owned).
ISOTeam said the acquisition will expand its capability to offer the full suite of project and construction management services, on top of its existing engineering services and solutions.
It will also leverage Pure Group's networks and capabilities as a project and construction manager to increase business opportunities and growth.
The deal will boost ISOTeam's overseas expansion - the group currently has a presence in Myanmar and Malaysia, while Pure Group has been engaged for work in Singapore, the Philippines, China, Malaysia and Thailand.
Mr Peter Dodson Coney and Jonathan Peter Coney, who hold key management positions in Pure Group, will enter service agreements with ISOTeam for two years after completion of the deal, renewable for a further two years.
The ISOTeam shares that are to be issued to Coney will be deposited with an escrow agent and only released to Coney after it fulfils specific profit targets.
To obtain 11.8 million of the shares (valued at S$3 million), Pure Group needs to achieve an audited consolidated profit after tax of at least S$3 million for the period from the completion date up to June 30, 2020, or if it fails to meet the target, make a cash payout equal to the shortfall.
For the remaining 35.5 million shares (valued at S$9 million), it needs to have an audited consolidated profit after tax of at least S$5 million for the period from July 1, 2020 to June 30, 2021, or make a cash payout equal to the shortfall on this target.
Pure Group's unaudited profit after tax was S$2.2 million for the period from July 1, 2017 to June 30, 2018. Its total unaudited net tangible asset as at June 30, 2018 was about S$4.2 million.
The acquisition is subject to ISOTeam completing its due diligence on Pure Group in order for ISOTeam directors to form an opinion in accepting the profit earn-out.
Coney and Mr Peter Dodson Coney have also indemnified ISOTeam against any claim against Pure Group for its work prior to the deal completion, and any liabilities incurred by Pure Group attributable to matters occurring prior to the completion date, subject to certain conditions. Coney’s liability is capped at S$8 million and Mr Peter Dodson Coney’s liability is capped at S$12 million.
The conditional SPA can be terminated by either party if certain deal conditions are not fulfilled or waived within 21 business days from Aug 30, 2019.
ISOTeam shares were down S$0.005 or 2 per cent at S$0.25 as at 10.52am.