Northstar bids for Innovalues

The private-equity firm joins a trend of targeting Asian precision manufacturers servicing the transport sector.

Northstar Equity Partners intends to acquire Singaporean precision-parts maker Innovalues Limited for $239 million.

Private-equity managers have been bidding for high-end manufacturers throughout Asia, driving up valuations.

One analyst at Maybank Kim Eng, issuing a report, said Northstar has achieved ‘fair value’ for its Innovalues offer of S$1.01 per share.

Innovalues shareholders are also being offered the option to take S$0.61 per share in cash, plus shares priced at S$0.41 in Precision Solution Group, a special purpose vehicle set up by Northstar to make the acquisition.

The transaction, announced Wednesday, October 26, represents a 3% premium to Tuesday’s close – and a premium of 13% to the closing price of S$0.895 per share of August 2, the day Innovalues first announced it was the subject of a potential M&A deal. The Singapore bourse suspended trading in Innovalues shares following the announcement on Wednesday.

A portfolio manager in Singapore agreed the deal looked fair: “The market was expecting a valuation of about 12.7 times forward earnings multiples for 2017, so this deal, at 11.5 times, is more than reasonable.”

Manufacturing trend

The deal, if successful, adds to a growing list of manufacturing transactions in Asia. Private equity likes the sector because new regulation in vehicular safety and energy savings is boosting business for makers of components that go into automobiles, said the report from Maybank Kim Eng.

Recent deals or attempted deals include Baring Asia’s $332 million purchase of Interplex Industries, a precision-engineering company in Singapore; Baring’s ongoing pursuit of SAI Global in Australia; and repeated attempts by KKR to list MMI, another Singaporean manufacturer it bought in 2007 for $700 million.

Innovalues specialises in customised precision-machine parts for automotive and office automation components. Its clients include Epson, Foxconn, Hewlett Packard, Volkswagon and Xerox. It has factories in China, Malaysia and Thailand, as well as in Singapore.

The company was listed on the Singapore Stock Exchange in 2001. Its CEO, Goh Leng Tse, owns about 21% of the company. Other directors own another 17.8%, meaning 38% of the outstanding shares have declared for the buyout.

Smooth sailing?

Analysts told FinanceAsia they expect major customers will not try to block the deal. Nor will China’s regulators be an obstacle, despite the fact that about 60% of Innovalues’ revenue comes from there. That is because China’s Ministry of Commerce can only intervene in such deals if a company’s domestic turnover exceeds Rmb2 billion in the latest fiscal year, which is not the case for Innovalues.

In the event the deal does face a competitive offer, it can shift from being a mandatory general offer to being a voluntary general offer, in which case Northstar would acquire a majority but not necessarily 100% of outstanding shares.

Northstar, backed by TPG, was founded in 2003 by two former Goldman Sachs bankers. It has a committeed equity capital in excess of $2 billion, with a focus on growth companies in Indonesia and other Southeast Asian markets.

SGX is expected to approve the deal by the end of November; after that it must pass a court hearing in January. If all goes well for the dealmakers, the transaction should see payments made on February 13, 2017.

Standard Chartered is the sole financial adviser for Northstar while Allen & Gledhill is the legal counsel.

Innovalues’ financial adviser is Rippledot Capital and the legal adviser is Drew & Napier. 

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